Assignment and exercise
1In one sentence
Whoever buys an option can exercise it: use the right to buy or sell the shares. Whoever sold it gets assigned: they have to deliver.
Most traders never exercise. They sell the option before expiration instead, which is usually worth more.
2Try it: tap each case
What happens to an option in each situation:
At expiration, in the money
Options that finish $0.01 or more in the money are usually exercised automatically. A $230 call with the stock at $235 turns into 100 shares bought at $230.
At expiration, out of the money
It expires worthless. Nothing happens to your account beyond losing what you paid.
You sold a call and get assigned
You must sell 100 shares at the strike. If you own them (covered call), they're sold. If not, you end up short the shares.
You sold a put and get assigned
You must buy 100 shares at the strike. That's step 2 of the wheel.
Early assignment
US stock options can be exercised any day, so sellers can be assigned early. It's most likely for deep in-the-money options and just before a dividend.
Not enough money to exercise
Many brokers will close or exercise positions for you before expiration if you can't cover the shares. Check your broker's rules.
33 words to know
Exercisebuyer's right
Using an option to buy (call) or sell (put) 100 shares at the strike.
Assignmentseller's duty
Being chosen to deliver: sell shares for a call, buy shares for a put.
Auto-exercise$0.01 ITM
At expiration, options at least a cent in the money are usually exercised automatically.
4Watch out
- Selling beats exercising. Exercising throws away an option's remaining time value. Selling it usually gets you more.
- Expiration surprises. A stock moving after the close on expiration day can change what gets exercised. This is called pin risk.
- Have the money or shares. Exercise or assignment can mean buying or selling 100 shares, which takes cash or stock you may not have.
5Quick check · 3 questions · optional
Common questions
What is option assignment?
Assignment is when the seller of an option is required to fulfil it: sell 100 shares at the strike for a call, or buy 100 shares for a put.
Can options be assigned early?
Yes. US stock options can be exercised any time before expiration, so sellers can be assigned early. It's most common for deep in-the-money options and before dividends.
What happens if my option expires in the money?
Options at least $0.01 in the money at expiration are usually exercised automatically, so you'd buy or sell 100 shares. Many traders close them before expiration to avoid this.
Education only. Examples use illustrative numbers. Not financial advice; you make your own decisions.