Options mechanics
Early Assignment Risk
The possibility a short American-style option is assigned before expiration.
What Early Assignment Risk Means
A short option can be assigned whenever its holder exercises an American-style contract. Risk often rises when it is deep in the money, time value is small, or a dividend affects exercise economics.
How to Read the Result
A short in-the-money call with little time value may be assigned before the ex-dividend date, leaving the writer short shares.
Limitations
- Assignment cannot be predicted contract by contract.
- Broker processes and fees vary.
- European-style contracts follow different rules.
Common Questions
Can an OTM option be assigned?
A holder can submit exercise, though doing so is generally economically irrational. Low probability is not impossibility.
Option pricing, payoff and the Greeks
- American vs European optionsDefinition
- Option price API endpointAPI
- Option price calculatorCalculator
- Greeks calculatorCalculator
- Probability calculatorCalculator