Definition
Assignment (Options)
Assignment is when an option seller is obligated to fulfil the contract because the buyer has exercised it.
If you have sold (written) a call and it finishes in-the-money at expiry, you may be assigned — meaning you must deliver the shares (for stock options) or pay the cash difference (for index options). Assignment is the flip side of exercise and is the main risk option writers must plan for.
On the NSE, stock options are physically settled, so a writer assigned on a call must deliver shares and a writer assigned on a put must take delivery and pay full value — a large cash outlay. This is why brokers in India aggressively ask retail F&O writers to square off in-the-money stock options before expiry to avoid a margin and delivery shock.
Related terms
- Physical vs Cash SettlementPhysical settlement delivers the actual shares at expiry, while cash settlement just exchanges the profit or loss in money.
- MarginMargin is the upfront money a trader must keep with the broker as collateral to take a leveraged futures or options position, set by the exchange to cover potential losses.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.