It’s the "financial jump scare" that lingers in the minds of many option sellers: you sell a contract, feel confident in your strategy, and then boom—out of nowhere, you're assigned. But how real is this risk?
Can my short option be assigned before expiration (early assignment)?
In this deep dive, we cut through the "phantom fear" to get the facts. The short answer is yes, but it's not random. We explore the specific, primary reasons early assignment happens (hint: dividends are #1) and other triggers like deep in-the-money options.
You'll learn why, according to OCC data, early assignment is genuinely rare for most traders and what really happens in your account if you are assigned. More importantly, we discuss how to manage this risk like a pro, using strategies like covered calls and cash-secured puts that make assignment a manageable, or even desired, outcome rather than a catastrophe. We also bust common myths about index options (SPX vs. SPY) and American-style options.
After listening, what's one step you'll take to check your positions for dividend risk?
Key Takeaways
- Yes, but It's Rare and Not Random: Early assignment can happen with American-style options (most stocks and ETFs), but it's uncommon. Data shows less than 10% of all options are ever exercised, and early assignment is only a fraction of that.
- Dividends are the #1 Cause: The most common reason for early assignment is dividends. A holder of an in-the-money call may exercise it just before the ex-dividend date to buy the stock from you and collect the upcoming dividend.
- Other Triggers: Other key reasons include options that are deep in-the-money (with little to no time value left) and the "chaos" and high gamma risk of expiration week.
- What Actually Happens: It's not a catastrophe if you're prepared. If your short call is assigned, you sell 100 shares at the strike price. If your short put is assigned, you buy 100 shares at the strike price. The option disappears, and the trade is realized.
- Proactive Management is Key: The best way to manage this risk is to be acutely aware of ex-dividend dates. You can also stick to strategies like cash-secured puts (where you have the cash ready) and covered calls (where you own the shares) to ensure assignment is a manageable, planned-for outcome.
"So the big question is, can your short option actually be assigned before expiration? Is it real or just, you know, a trading urban legend?"
Timestamped Summary
- (01:28) When is early assignment a real risk? (The top 3 reasons)
- (03:48) How common is early assignment? (Debunking the "phantom fear")
- (05:55) What actually happens in your account when you're assigned?
- (09:00) How to proactively manage and avoid unwanted early assignment.
- (11:50) Mythbusting: Are index options (SPX vs. SPY) safe from assignment?
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