29fintechM

Assignment explained - 02 - how to avoid assignment in options trading: practical tips for investors and traders

Options 10 minutes to read

How to avoid assignment in options trading: practical tips for investors and traders

This article is part of a four-part mini-series on option assignment—created for investors and active traders alike. Whether you're just starting out or deep into advanced strategies, understanding assignment will help you manage risk and opportunity more confidently.

This is part 2: How to avoid assignment.


Assignment is part of the game when you sell options—but it doesn’t have to catch you off guard. Whether you're an investor writing the occasional covered call or a trader actively managing multi-leg spreads, the key to avoiding unwanted assignment lies in understanding when and why it typically occurs—and taking action before it does.

Let’s start with the core concept: assignment happens when the buyer of an option chooses to exercise it. If you’ve sold that option, you’re now on the hook: you may need to buy or deliver 100 shares per contract. But contrary to what many fear, assignment doesn’t come out of nowhere. In almost every case, the warning signs are right there—if you know what to look for.


Focus on extrinsic value

One of the most useful indicators for predicting assignment risk is extrinsic value, also known as time value. This is the part of the option's price that reflects time left until expiration and expectations for volatility. The rest of the price is intrinsic value, which is the amount the option is in the money.

As long as a short option still has a decent amount of extrinsic value—say €0.20 or more—it’s unlikely to be exercised early. Why? Because the option buyer would lose that time value by exercising.

But once extrinsic value drops below €0.10, particularly when an option is in the money, the odds of assignment go up dramatically. At that point, there’s little benefit to holding the option, and exercising it to capture intrinsic value becomes more attractive—especially for call buyers just ahead of a dividend.

You can estimate extrinsic value in your Saxo platform by looking at how much of the option’s price reflects its time value. Here’s how it works: for a put option, if the strike price is higher than the stock price, the option has intrinsic value. For example, if you’ve sold a put with a €22 strike and the stock is trading at €17.80, the option has €4.20 of intrinsic value—because €22 minus €17.80 equals €4.20. If the option’s current price is €6.30, then the remaining €2.10 (6.30 minus 4.20) represents extrinsic value.

That part reflects how much time is left until expiration and any volatility premium. If that extrinsic value drops below €0.10, assignment becomes more likely.

If the result of the subtraction is negative, that simply means there’s no intrinsic value at all—the option is out of the money and carries only time value. In that case, there is no assignment risk, since exercising an out-of-the-money option would make no economic sense.

Example of a position having sold put-leg in the money
Example position with 1 leg (puts) in the money


Don’t let in-the-money status scare you

It’s important to understand that an option being in the money doesn’t automatically mean assignment is imminent. Traders often sell puts or calls that drift in the money, especially in high-volatility names. What matters more is how much time value is left.

Take the case shown in the screenshot above: the put is deep in the money, but the trader also holds a long call at the same strike. This is a synthetic long stock position. In this case, even though the short put is deep in the money, there's no real reason to fear assignment. That’s because the trader holds a long call at the same strike price, forming a synthetic long stock position. Whether assignment happens or not, the risk and payoff are effectively the same as owning the stock. The trader is already exposed to the same directional movement. In fact, with both legs in place, the strategy is balanced and self-hedging.

There's no urgent risk, no sudden margin surprise—just a shift in how the position is held. So even if the short put looks scary on its own, the overall structure is stable and intentional.


Be alert near expiration and dividends

Most early assignments happen just before expiration—especially on Friday. The closer you get to expiry, the more likely it is that your short in-the-money options will lose all their extrinsic value. For short calls, assignment risk spikes even earlier if there’s an upcoming dividend. That’s because call holders may want to exercise just to claim the payout.

One important point to remember: assignment never happens during market hours. It’s a back-office process that takes place after the close, typically based on end-of-day decisions from option holders. So during the trading day, you won’t suddenly find yourself assigned—there’s time to act. (For more details on how assignment processing works and when it shows up in your account, see Part 1: Assignment explained.)

A simple habit is to check your short options one or two days before expiration. If they're in the money and trading at or near their intrinsic value, you may want to close or roll them. The same goes for any short call that’s in the money heading into an ex-dividend date.


A few key examples

  • Covered call on a dividend stock: You sold a call at €48, and the stock is at €49.20 the day before ex-div. The call trades at €1.05. The dividend is €1.20. Since the option’s time value is less than the dividend, you’re at risk of being assigned. Roll the call or close it.
  • Cash-secured put nearing expiry: You sold a €22 put on a stock now trading at €17.80. The option has just €0.05 of extrinsic value left. You want to avoid buying the shares? Close or roll it. Want the stock? Then assignment is just execution.
  • Iron condor with breached put side: Your short put is in the money, long put still far out of the money. Close the short leg before expiration to avoid owning stock. You can still hold the long put if you expect a rebound—or close the entire side.

Final thoughts

Avoiding assignment is often just a matter of timing. Watch your short options for signs of declining time value. Monitor dividend schedules. And take a proactive approach to managing risk. Whether you want to avoid assignment—or accept it on your own terms—the more you understand the warning signs, the more control you’ll have.

It’s not about avoiding assignment at all costs. It’s about choosing when it works for you.

This material is marketing content and should not be regarded as investment advice. Trading financial instruments carries risks and historic performance is not a guarantee of future results.
The instrument(s) referenced in this content may be issued by a partner, from whom Saxo receives promotional fees, payment or retrocessions. While Saxo may receive compensation from these partnerships, all content is created with the aim of providing clients with valuable information and options..

Disclaimer

Confidentiality and Usage:
You may not reproduce, distribute, or transmit this material or any portion thereof without prior written permission from Saxo.

Nature of Information:
The information provided herein is based on current market conditions and analysts' opinions, which may reflect personal views of the author, and are subject to change without notice. This material does not include a record of any trading prices, or an offer of, or solicitation for, or endorsement to enter into any transaction in any investment product. Any forecast on the economy, markets and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the investment product subject of this material.

Responsibility and Liability:
Saxo accepts no liability for any use that may be made of these comments or for any consequences that arise from such use. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

The information provided in this material is solely for information only. It is intended for general circulation and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. Accordingly, it should not be relied on or treated as a substitute for specific advice concerning specific situations of any person. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase an investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether any investment product mentioned in this publication is suitable for you.

Notwithstanding the above, insofar as any information provided herein contains research analyses or reports concerning any investment product authored by any foreign research house and is issued or promulgated to a person in Singapore who is not an accredited investor, expert investor, and/or institutional investor, Saxo Capital Market Pte. Ltd. accepts legal responsibility for the contents of this material to the extent required by law. Recipients of such material are to contact Saxo Capital Markets Pte. Ltd. in respect of any matters arising from, or in connection with, this material.

Risk Disclosure:
Trading in investment products involve significant risk, including the risk of losing your entire investment. Historical returns are not a guarantee of future returns. Prices can both rise and fall, and there is a risk that you will not get back the money you invested.

Conflicts of interest:
The author may hold positions in the investment products mentioned. The author does not own positions in the underlying investment product exceeding 0.5% of its market capitalisation, save as otherwise declared. The author is not permitted to trade the mentioned investment products within the first 24 hours after the publication of this article.

Saxo maintains partnerships with companies that compensate Saxo for promotional activities conducted on its platform. Additionally, Saxo has agreements with certain partners who provide retrocession contingent upon clients purchasing specific investment products offered by these partners. While Saxo receives compensation from these partnerships, all content is conducted with the intention of providing clients with valuable options and information.

Publication details:
If any listed companies are the subject of the material, the content has not been submitted to the companies in question prior to publication.

Please refer to our full disclaimer and notification on non-independent investment research for more details.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Saxo is part of the J. Safra Sarasin Group.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.