What does Assignment in Options mean ?

An Assignment is the opposite of an Exercise in Options. An Assignment is when the seller or buyer of an Option exercise his right to sell or buy. Stock exchanges use a trading software that randomly selects a buyer or seller to honor an Option when it is exercised.

 

Let's say you have bought Tata Motors 350 call and received Rs 15 premium. The Tata Motors stock price rises to Rs 380. It is possible that a trader who bought Tata Motors 350 calls would decide to exercise his Option. If the software assigns you to honor the contract, you will have to pay Rs 30 - Rs 15, = Rs 15, and honor it.

 

Only a very small percentage of Options are assigned. All Option holders are entitled to exercise their rights, regardless of whether the trade is profitable or not.