Options Assignment Definition

Definition

Options assignment is the process by which an option writer is selected to fulfill the obligation created by a short option contract.

Why it matters on the Series 7

The exam tests whether you know what the short call or short put writer must do if assigned. Calls create an obligation to sell stock; puts create an obligation to buy stock.

Example

A customer short one XYZ 40 call may be assigned and required to sell 100 shares at 40, even if the market price is higher.

Common mistakes

• Applying the option holder's rights to the option writer.
• Forgetting that assignment risk belongs to short options.
• Confusing exercise, which is initiated by the holder, with assignment, which affects the writer.