What is option assignment?

If you trade options it’s very likely at some point you will be assigned eventually.

Being assigned means you’ll have 100 shares for each contract that was assigned. Sometimes this can bring your balance negative and you might receive a call from your broker. On this call ask for explanation of the position and options of how to bring your portfolio back into the positive.

For example if you sold a $5 wide spread and collected $1.66 and put up the buying power of $334. Then things go against you and one morning you wake up you might have 100 shares from the option you had to pay for (either called away from you or put to you) you’ll also have the backup spread you bought – this back up option’s value would’ve increased since it was closer to being in the money than it was when you bought it..

There are many options for how to rectify the position – the easiest to understand would be to sell the 100 shares and then sell the option you bought as back up..

If you’re in doubt – and really are worried about the potential loss you should call your broker and walk through the position with them. They are allowed to help you unwind and will give you fair and specific advice (they’ll know your position better than I can).