An assignment notice signals that an options contract, either a call or a put, has been exercised by its holder. For call options, this means the buyer is demanding delivery of the underlying shares at the strike price, and the seller of the call option is obligated to sell those shares. Conversely, for put options, the buyer is demanding to sell the underlying shares at the strike price, and the seller of the put option is obligated to buy those shares. This process directly impacts the assigned option seller, who must fulfill their contractual obligation. The assignment notice is typically delivered by the Options Clearing Corporation (OCC) to the broker, who then passes it on to the investor. The selection of which specific short options positions are assigned when multiple contracts exist is often done through a random lottery system by the OCC, though some brokers may use a 'first-in, first-out' or other systematic approach. Upon receiving an assignment notice, the assigned option seller must be prepared to either deliver (for calls) or purchase (for puts) the underlying asset, often requiring them to buy or sell the shares on the open market if they don't already hold the opposite position. This can lead to unexpected transactions and potential costs if the market price has moved unfavorably since the option was written. Understanding the implications of an assignment notice is crucial for anyone writing options, as it represents a significant part of the risk profile of selling contracts.
The seller (writer) of an options contract receives an assignment notice. This notification comes from their brokerage firm, which in turn received it from the Options Clearing Corporation (OCC).
Upon receiving an assignment notice, the assigned option seller must fulfill their obligation. For a short call, they must deliver the underlying shares; for a short put, they must buy the underlying shares, often by executing a corresponding market order if they do not already hold the position.
Yes, for American-style options, an assignment notice can be received at any time before the expiration date. This often occurs when a buyer exercises their in-the-money option early, particularly if a dividend payment is imminent.