Option Assignments

What are option assignments?

An option assignment is the sale (in the case of a call option) or purchase (in the case of a put option) of an underlying instrument such as a stock, an index, a treasury security or currency, pursuant to an exercise tendered to the Options Clearing Corporation or OCC. Therefore they are the opposing side of the option exercises.

Differences in option assignments between European options and American options

Writers of American options are held liable to be assigned at any time after the day the option is traded to either the day the position is closed or until it expires. Writers of European options are liable to be assigned on an option on expiration.

Index option assignments

Because index options are cash settled, their assignment is always processed with a buy option trade. The allocation of an assignment is done on a random basis by the OCC, exercised their rights set forth by the option contract and settlement must be made.

What is the Option Assignment process? An overview.

Accounts that held long positions on options (owners), exercise their right to buy or sell the stock, for example, at the specific price. The writers or sellers of these options held short positions and are obliged to sell the stock to them (call) or buy the stock from them (put) in the form of an assignment. The OCC randomly assigns and notifies houses on the street with short positions of the specific option. The brokerage house then randomly assigns internal accounts (the OCC sees customer and firm separately).

What are the settlement dates of option assignments?

For equities

Exercises on options were processed the prior day and settle T+3.

Because the assignments are created that night after all the exercises are processed, they are retroactive and settle T+2.

For indices

Exercises on Indices are processed on trade date (TD) and settle T+1.

Assignment therefore settle TD.

What is the value of an option assignment?

For equities, currencies, and Treasuries, the value of an option assignment is calculated the following way.

For indices, the value of the option assignment is:

1. the difference between the opening and closing market price of the index (European style) or closing market price (American style) and the strike price
2. number found in (1) x 100 x number of contracts