How to Calculate Assignment Risk in Options: Formula, Examples & Calculator

Learn how to calculate assignment risk in options with formulas, examples, ITM scenarios, dividends, and an assignment risk calculator for traders.

You enter a covered call on a share which you already own. A few days later, the share price rises above your strike price, and the option becomes deep in-the-money. Or maybe you sell a cash-secured put since you have no problem buying the shares at the strike and then find that the price of the share has fallen sharply. The simple question that begins to go through your mind is whether or not you could be assigned. The importance of that question lies in the fact that when you sell an option, you take on an obligation. If you write a call, you could end up with shares being called away, and if you write a put, you might be required to buy shares at the strike price. With American-style equity options, that obligation may be triggered before the option expires since the holder of the option can exercise it early. The Options Industry Council states that an option writer can be assigned on any business day as long as an American-style short option is still open. The difficulty lies in the fact that the risk associated with options assignment is not just a matter of determining whether an option is in-the-money (ITM) . Although moneyness is important, so are the intrinsic value, the remaining extrinsic value, the time to expiration, dividends, the type of option, and the current market conditions. There is also no generally accepted formula which, when given those inputs, can yield a perfectly reliable percentage for any given position. Because of this, an assignment risk calculator should be seen as a decision-support tool, not a crystal ball. What Is Assignment Risk in Options? The risk involved in an assignment is the situation in which the seller of an option is obliged to carry out the contract since the holder of the option exercises it. In the case of having sold a call, assignment usually means that you are required to deliver the underlying shares at the strike price; if you have sold a put, assignment usually means that you have to buy the underlying shares at the strike price. Standard U.S. equity option contracts usually cover 100 shares, even though corporate actions may alter the contract terms. That is the reason why assignment mainly relates to short option positions . When a trader purchases an option, he acquires the right to exercise; when a trader sells an option, he assumes the corresponding obligation. In the case of a covered-call trader, assignment usually involves the sale of the shares underlying the call at the strike price. For a cash-secured put seller, assignment means that shares are obtained at the strike price, with the premium received lowering the effective cost of acquisition. SecurePutCalls gives a similar description of the cash-secured put: the seller has enough cash available to buy the stock if he is assigned. It is not necessarily a bad thing to have an assignment. On the matter, for a number of traders who use the Wheel Strategy, assignment is actually part of the plan. The key issue then is whether the tr