In the options wheel strategy, assignment occurs primarily in Phase 1 and Phase 3.
Put Assignment: When you sell a cash-secured put and the stock closes below your strike price at expiration, the buyer exercises their right to sell the stock. You are "assigned" the obligation to buy 100 shares at the agreed-upon strike price.
Call Assignment (Called Away): When you sell a covered call and the stock closes above your strike price at expiration, you are assigned the obligation to sell your 100 shares at the strike price, resulting in a capital gain.
Early Assignment: American-style options can be exercised at any time before expiration. This risk increases significantly when a short call is deep in-the-money and a dividend is imminent. The option buyer may exercise early to capture the dividend for themselves.
Partial Assignment: If you sold multiple put contracts, you may be assigned on only some of them, resulting in fewer than your total position in shares.
Examples of Assignment in Action
- 1Being assigned 100 shares of AAPL at $170 because the stock closed at $168 on the Friday expiration.
- 2Having 100 shares of MSFT called away at $410 because the stock rallied to $425 above the covered call strike.
- 3Early assignment of a short $200 call the day before an ex-dividend date when the option had $0.02 of extrinsic value remaining.