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The risk that the holder of an American-style option exercises before expiration, obligating you to deliver or receive shares unexpectedly. Most likely on deep-ITM options near ex-dividend.
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Key takeawayMonitor short calls approaching ex-dividend and short puts that are deep ITM. If remaining time value is less than the dividend, early assignment is likely.
💡 Why It Matters
Early assignment turns a planned options position into an unplanned stock position. For spread traders, it can cause one leg to be assigned while the other remains open — creating unexpected exposure.
⚙ How It Works
American options can be exercised any time. Early assignment is most likely on deep-ITM short calls before ex-dividend (to capture the dividend) and deep-ITM short puts when interest income exceeds time value.
📋 Example
You're short the $190 AAPL call (AAPL at $210, ex-div tomorrow, $0.75 dividend, $0.50 time value remaining). The holder exercises to capture $0.75 dividend > $0.50 time value. You wake up short 100 shares at $190.
⚠ Common Mistakes
Ignoring dividend dates on short calls. If your short call is deep ITM and the dividend exceeds remaining time value, assume you will be assigned the night before ex-div. Close or roll proactively.
❓ FAQ
What is Early Assignment Risk?
The risk that the holder of an American-style option exercises before expiration, obligating you to deliver or receive shares unexpectedly. Most likely on deep-ITM options near ex-dividend.
Why does Early Assignment Risk matter for premium sellers?
Monitor short calls approaching ex-dividend and short puts that are deep ITM. If remaining time value is less than the dividend, early assignment is likely.
How does Early Assignment Risk work?
American options can be exercised any time. Early assignment is most likely on deep-ITM short calls before ex-dividend (to capture the dividend) and deep-ITM short puts when interest income exceeds time value.
What are common mistakes with Early Assignment Risk?
Ignoring dividend dates on short calls. If your short call is deep ITM and the dividend exceeds remaining time value, assume you will be assigned the night before ex-div. Close or roll proactively.
Related Terms
60/40 Tax Treatment
The favorable tax split for Section 1256 contracts: 60% of gains are taxed at the long-term capital gains rate and 40% at the short-term rate, regardless of ...
Adjusted Option
An option whose terms have been modified due to a corporate action — stock split, special dividend, merger, or spinoff.
All-or-None Order
An order that must fill completely or not at all, but unlike FOK, it can wait in the book for a complete fill rather than canceling immediately.
American-Style Option
An option that can be exercised by its holder at any time from listing until expiration.
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