Assignment, from the exercise notice to your account

Assignment is the moment a short option stops being a quote on a screen and becomes shares in your account. Most people learn how it works the first time it happens to them. It's better to know the sequence beforehand, because parts of it are outside your control and the timing isn't what you'd guess.

Who decides

The holder of the option decides whether to exercise. You, the writer, don't get a vote and you don't get advance notice. A put holder who exercises sells 100 shares at the strike; a call holder who exercises buys them. Somebody who's short that contract has to take the other side, and picking that somebody is the clearinghouse's job.

How the OCC hands it out

Every listed option in the US is cleared by the Options Clearing Corporation. When a holder exercises, their broker sends the notice to the OCC, which assigns it at random among the clearing firms carrying short positions in that contract. Each firm then allocates its share among its own customers. The rules require a fair method, in practice random selection or first-in-first-out, and the broker has to tell you which it uses. So being assigned early is partly a lottery: if 5,000 contracts are open and 200 get exercised tonight, roughly four writers in a hundred hear about it in the morning.

When you find out

Exercise notices are processed after the close. The OCC's allocation runs overnight, brokers post the results before the next session, and you see the shares, or the missing shares, in the account the following morning. If the exercise happens on a Friday, the shares are there Monday at whatever price the market opens. At no point is there a step where you can decline.

Early exercise and expiration are different

Before expiration, a holder has to actively choose to exercise. American-style equity options allow it any day, but it's rare while the option still carries time value, because selling the option is worth more than exercising it. Two situations make early assignment likely: a put that's deep in the money with almost no time value left, and a call on a stock about to pay a dividend, where the dividend is bigger than the time value remaining in the call.

At expiration the default flips. Under the OCC's exercise-by-exception rule, any option that finishes in the money by $0.01 or more is exercised automatically unless the holder tells their broker not to. If your short put's strike is $45 and the stock closes at $44.99, plan on being assigned. The holder can also override in the other direction and exercise an option that closed out of the money. That matters when the stock moves after the 4:00 pm close but before the broker's exercise cutoff, which most brokers set somewhere between 4:30 and 5:30 pm Eastern.

What you're left with

Assigned on a short put: you own 100 shares per contract, bought at the strike, and the account was debited the full amount. If the cash wasn't there, in a margin account you're now borrowing it; in a cash account the broker may have closed the option for you before it got that far.

Assigned on a covered call: the shares are gone, sold at the strike, and the cash is in the account. Assigned on an uncovered call: you're short 100 shares, and the broker's risk desk will want that fixed quickly.

Cash-settled index options like SPX don't deliver anything. Assignment there is a debit or credit for the intrinsic value, and because those contracts are European-style there's no early exercise at all.

What you can still do

Before assignment, everything: buy the option back, roll it, or let it run. After assignment you can't undo the trade, but you can act on the new position immediately. Sell the shares at the open, sell a call against them, or hold. The one thing that matters is knowing the position exists. Look at the account the morning after any expiration, and any morning after a big move, before you place anything else.