Exercise, Assignment & Early Exercise

Exercise is the option buyer’s choice to use the contract. Assignment is what the short side receives when a buyer exercises.

At expiration

Brokers typically auto-exercise ITM options by a small threshold (check your broker’s rules). OTM options expire worthless. Be aware of pin risk when the stock closes right at the short strike — you may or may not be assigned.

Early exercise (American options)

Buyers sometimes exercise early around dividends (calls) or deep ITM puts for interest/borrowing reasons. As a short option holder, you can be assigned any day — especially when short options go deep ITM.

Practical implications

• Cash-secured puts — be ready to buy 100 shares per contract at the strike.
• Covered calls — shares may be called away; upside is capped.
• Credit spreads — early assignment on the short leg can leave you with stock + long option; manage before expiration week.
• Index options — often European and cash-settled; different mechanics than equities.

Multi-leg tips

Closing the short leg (or the whole spread) before expiration often reduces assignment surprises. Use the calculator to see expiration P/L, then decide whether holding through the last days is worth the pin risk.

Related strategies: Cash-secured put · Covered call