Expiration, exercise and assignment
Short options can be assigned, sometimes early. Know what position and cash requirement assignment would create.
Options risk. Long options can lose 100% of the premium; short options can lose far more and may be assigned early. Examples use synthetic prices and the common 100-share multiplier — check actual contract terms.
How it works
American-style options can be exercised any time before expiration; European-style only at expiration. Most US single-stock options are American style; many index options are European and cash-settled — check each contract.
When a long holder exercises, a short holder is assigned. A short call assigned means you must deliver 100 shares at the strike; a short put assigned means you must buy 100 shares at the strike.
ITM options are often exercised automatically at expiration under clearing-house and broker procedures. Rules and thresholds vary by broker — read yours.
Early assignment risk rises for ITM short calls just before an ex-dividend date and for deep ITM options with little time value.
Worked example
Assignment on a short put (synthetic)
- You sold one 50-strike put for 1.20 (+$120). At expiration the stock is $46.
- Assigned: you buy 100 shares at $50 = $5,000 cash required.
- Market value = $4,600. Net result = −$400 + $120 = −$280, and you now own shares that can keep falling.
Only sell an option if you can meet — and would accept — the assignment.
Common misconceptions
“I can't be assigned before expiration.”
American-style shorts can be assigned early.
“OTM at the close means no risk.”
After-hours moves and exercise decisions can still create surprises near the strike (pin risk).
Checkpoint