Assignment is what happens to the seller of an option when the buyer uses their right: the seller is forced to fulfill the contract. Assigned on a call, you must sell 100 shares at the strike; assigned on a put, you must buy 100 shares at the strike.
The two sides of an option are not symmetric. The buyer holds a right and chooses whether to exercise it. The seller holds an obligation and chooses nothing: if a buyer somewhere exercises, the clearing house picks a seller of that same contract and hands them the bill. That picking is assignment. You cannot decline it, negotiate it, or see it coming with certainty. The only way out of the obligation is to buy the option back before it happens. Whether an option is worth exercising is a question of moneyness: in-the-money options get exercised, out-of-the-money ones expire and the seller keeps the premium.
The numbers
You sold a put with a $95 strike for $2.50 and collected $250. The stock closes at $88 at expiry. The put is in the money, the buyer exercises, and you are assigned: you must buy 100 shares at $95. That is $9,500 leaving your account for stock the market prices at $8,800.
| Buyer of the put | Seller of the put | |
|---|---|---|
| Holds | a right, exercises by choice | an obligation, assigned without choice |
| At expiry, stock $88 | sells 100 shares at $95 | buys 100 shares at $95 ($9,500 cash) |
| Shares are worth | — | $8,800 |
| Net result | +$450 ($700 gain minus $250 paid) | −$450 ($700 loss minus $250 collected) |
The $250 you collected softened the blow, it did not prevent it. The premium is a cushion, not a shield.
Where it bites
It can happen early. American-style options (all US stock options) can be exercised on any day, not just at expiry. Deep in-the-money short calls get assigned early around ex-dividend dates; you wake up without your shares and owing the dividend. "I'll manage the position at expiry" assumes a schedule the buyer never agreed to.
The cash requirement is real. Assignment on one short put means finding $9,500. If the account does not have it, the broker liquidates something for you, at whatever price the moment offers. Sellers count the $250 as income and forget the $9,500 as a liability.
Expiry near the strike is a coin flip. Stock closes at $95.02 and the buyer may still exercise; at $94.98 you may be assigned anyway (exercise is the buyer's choice either way). Over a weekend you do not know whether you own the shares until the broker's report arrives. That is pin risk, and the only clean escape is closing the position before expiry.
Go feel it
Every "income strategy" pitch skips the part where assignment shows up uninvited. Sell a put with play money and meet the obligation yourself in The Premium Trap.
Related concepts: option premium · strike price · ITM, OTM, ATM