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Options Basics: How the Option Assignment Process Works

July 23, 2021 — 12:46 pm EDT

Written by [email protected] for Schaeffer  ->

There is a lot of technical jargon that is specific to the options market. For a beginner who is aiming to learn how to trade options, understanding these technical terms is crucial to optimizing trading results. One phrase that is a critical part of this options trading language is “assignment.” Simply defined, the assignment of an option refers to the fulfillment of the options contract by the seller. An option holder has the right to buy or sell the underlying equity at the given strike price. Once the holder decides to exercise the option, the option is said to be “assigned.” If a trader sells options, he must be aware of the assignment process and the risks it entails. We recommend subscribing to one of Schaeffer's options trading newsletters  to gain the ultimate insights into the language of the options market while making money, too.

What Does it Mean to Write an Option?

When an options seller writes an options contract, this is known as a “sell to open” trade, as he is essentially opening a new position. As the trader is selling the option to open this position, he is technically said to be “short” that underlying stock. The seller accepts a responsibility to sell or buy the underlying security in lieu of a premium received from the buyer. As a general rule, an option holder can exercise his rights any time before the contract expires. In order to learn to trade options, it is necessary to grasp this structure of corresponding rights and duties. It's important to also note that most options are exercised when they are nearing expiry because, after that, the options contract is worthless.

How Does the Option Assignment Process Work?

The assignment process is done at random by the Options Clearing Corporation (OCC) . A trader will become more acquainted with the operations of the OCC as he or she learns to trade options. When a buyer exercises his option, the OCC will randomly connect them with a brokerage that is short on options of that equity. Due to the lottery-like nature of the process, it is almost impossible to predict when an investor’s option may be assigned.

2 Categories of Options to Understand

As a brief summary, let’s go over the two basic categories of options. These categories and their respective merits become apparent as one learns to trade options. In a call option, the option holder possesses the right to buy the security before the contract expires. In this scenario, the seller’s obligation is to sell the option upon assignment.

The inverse of this is the put option. In this category, the holder has the right to sell to the security at the contract price. The consequence of this is that upon assignment, the seller must purchase the security at the strike price. If an investor does not own the stock, he must first buy it. After this, he must deliver it to the holder.

Initially, a seller has an edge in the options trading process. He starts with a net benefit as a premium is paid to him by the buyer without him giving any monetary return immediately. If an option is never exercised, the seller actually retains the premium if the contract expires.

However, the issues arise as the contract nears its expiry, as the chances of assignment increase exponentially. The problem for investors when called to assign are three-fold: 1) they have no control over when the option is exercised, 2) they must fulfill their end of the bargain irrespective of whether this could lead to a loss or a low gain, and 3) even if the underlying stock is not trading, in a call option the deliver the stock to the buyer.

Can an Options Seller Predict When an Option Will Be Exercised?

It would be misleading if we were say there is some magic formula that we could use to predict when an option will be exercised. Traders will understand how frequent assignment occurs once they more completely learn to trade options. However, a general statistic is that approximately 7% of options are actually ever exercised. Even though, technically, an option can be assigned any time while the contract remains open, option holders usually exercise their option near its expiration date. This is because traders usually wait to find the ideal time and observe trading prices. As you learn to trade options, you will realize that very few buyers ever exercise options ahead of expiration.

When is Options Assignment Less Likely?

Even though we cannot accurately predict when an option will be exercised, there are certain indicators traders can use. These indicators are easier to see when you learn to trade options and observe market trends.

An assignment is less probable when an option is out-of-the-money. An option is out-of-the-money when the security is trading at a higher value in the market as compared to the strike price. It is rarely recommended to sell an option that is out-of-the-money. This is because if the strike price is lower than the market value, the option holder will make a loss on the contract. If the strike price is $30, and the market value is $20 and the holder exercises the call option, they will end up taking a loss since they are buying it at a higher price. As investors learn to trade options, they can better predict the time of assignment with greater accuracy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Random Assignment in Psychology: Definition & Examples

Julia Simkus

Editor at Simply Psychology

BA (Hons) Psychology, Princeton University

Julia Simkus is a graduate of Princeton University with a Bachelor of Arts in Psychology. She is currently studying for a Master's Degree in Counseling for Mental Health and Wellness in September 2023. Julia's research has been published in peer reviewed journals.

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Saul Mcleod, PhD

Editor-in-Chief for Simply Psychology

BSc (Hons) Psychology, MRes, PhD, University of Manchester

Saul Mcleod, PhD., is a qualified psychology teacher with over 18 years of experience in further and higher education. He has been published in peer-reviewed journals, including the Journal of Clinical Psychology.

Olivia Guy-Evans, MSc

Associate Editor for Simply Psychology

BSc (Hons) Psychology, MSc Psychology of Education

Olivia Guy-Evans is a writer and associate editor for Simply Psychology. She has previously worked in healthcare and educational sectors.

In psychology, random assignment refers to the practice of allocating participants to different experimental groups in a study in a completely unbiased way, ensuring each participant has an equal chance of being assigned to any group.

In experimental research, random assignment, or random placement, organizes participants from your sample into different groups using randomization. 

Random assignment uses chance procedures to ensure that each participant has an equal opportunity of being assigned to either a control or experimental group.

The control group does not receive the treatment in question, whereas the experimental group does receive the treatment.

When using random assignment, neither the researcher nor the participant can choose the group to which the participant is assigned. This ensures that any differences between and within the groups are not systematic at the onset of the study. 

In a study to test the success of a weight-loss program, investigators randomly assigned a pool of participants to one of two groups.

Group A participants participated in the weight-loss program for 10 weeks and took a class where they learned about the benefits of healthy eating and exercise.

Group B participants read a 200-page book that explains the benefits of weight loss. The investigator randomly assigned participants to one of the two groups.

The researchers found that those who participated in the program and took the class were more likely to lose weight than those in the other group that received only the book.

Importance 

Random assignment ensures that each group in the experiment is identical before applying the independent variable.

In experiments , researchers will manipulate an independent variable to assess its effect on a dependent variable, while controlling for other variables. Random assignment increases the likelihood that the treatment groups are the same at the onset of a study.

Thus, any changes that result from the independent variable can be assumed to be a result of the treatment of interest. This is particularly important for eliminating sources of bias and strengthening the internal validity of an experiment.

Random assignment is the best method for inferring a causal relationship between a treatment and an outcome.

Random Selection vs. Random Assignment 

Random selection (also called probability sampling or random sampling) is a way of randomly selecting members of a population to be included in your study.

On the other hand, random assignment is a way of sorting the sample participants into control and treatment groups. 

Random selection ensures that everyone in the population has an equal chance of being selected for the study. Once the pool of participants has been chosen, experimenters use random assignment to assign participants into groups. 

Random assignment is only used in between-subjects experimental designs, while random selection can be used in a variety of study designs.

Random Assignment vs Random Sampling

Random sampling refers to selecting participants from a population so that each individual has an equal chance of being chosen. This method enhances the representativeness of the sample.

Random assignment, on the other hand, is used in experimental designs once participants are selected. It involves allocating these participants to different experimental groups or conditions randomly.

This helps ensure that any differences in results across groups are due to manipulating the independent variable, not preexisting differences among participants.

When to Use Random Assignment

Random assignment is used in experiments with a between-groups or independent measures design.

In these research designs, researchers will manipulate an independent variable to assess its effect on a dependent variable, while controlling for other variables.

There is usually a control group and one or more experimental groups. Random assignment helps ensure that the groups are comparable at the onset of the study.

How to Use Random Assignment

There are a variety of ways to assign participants into study groups randomly. Here are a handful of popular methods: 

• Random Number Generator : Give each member of the sample a unique number; use a computer program to randomly generate a number from the list for each group.
• Lottery : Give each member of the sample a unique number. Place all numbers in a hat or bucket and draw numbers at random for each group.
• Flipping a Coin : Flip a coin for each participant to decide if they will be in the control group or experimental group (this method can only be used when you have just two groups) 
• Roll a Die : For each number on the list, roll a dice to decide which of the groups they will be in. For example, assume that rolling 1, 2, or 3 places them in a control group and rolling 3, 4, 5 lands them in an experimental group.

When is Random Assignment not used?

• When it is not ethically permissible: Randomization is only ethical if the researcher has no evidence that one treatment is superior to the other or that one treatment might have harmful side effects. 
• When answering non-causal questions : If the researcher is just interested in predicting the probability of an event, the causal relationship between the variables is not important and observational designs would be more suitable than random assignment. 
• When studying the effect of variables that cannot be manipulated: Some risk factors cannot be manipulated and so it would not make any sense to study them in a randomized trial. For example, we cannot randomly assign participants into categories based on age, gender, or genetic factors.

Drawbacks of Random Assignment

While randomization assures an unbiased assignment of participants to groups, it does not guarantee the equality of these groups. There could still be extraneous variables that differ between groups or group differences that arise from chance. Additionally, there is still an element of luck with random assignments.

Thus, researchers can not produce perfectly equal groups for each specific study. Differences between the treatment group and control group might still exist, and the results of a randomized trial may sometimes be wrong, but this is absolutely okay.

Scientific evidence is a long and continuous process, and the groups will tend to be equal in the long run when data is aggregated in a meta-analysis.

Additionally, external validity (i.e., the extent to which the researcher can use the results of the study to generalize to the larger population) is compromised with random assignment.

Random assignment is challenging to implement outside of controlled laboratory conditions and might not represent what would happen in the real world at the population level. 

Random assignment can also be more costly than simple observational studies, where an investigator is just observing events without intervening with the population.

Randomization also can be time-consuming and challenging, especially when participants refuse to receive the assigned treatment or do not adhere to recommendations. 

What is the difference between random sampling and random assignment?

Random sampling refers to randomly selecting a sample of participants from a population. Random assignment refers to randomly assigning participants to treatment groups from the selected sample.

Does random assignment increase internal validity?

Yes, random assignment ensures that there are no systematic differences between the participants in each group, enhancing the study’s internal validity .

Does random assignment reduce sampling error?

Yes, with random assignment, participants have an equal chance of being assigned to either a control group or an experimental group, resulting in a sample that is, in theory, representative of the population.

Random assignment does not completely eliminate sampling error because a sample only approximates the population from which it is drawn. However, random sampling is a way to minimize sampling errors. 

When is random assignment not possible?

Random assignment is not possible when the experimenters cannot control the treatment or independent variable.

For example, if you want to compare how men and women perform on a test, you cannot randomly assign subjects to these groups.

Participants are not randomly assigned to different groups in this study, but instead assigned based on their characteristics.

Does random assignment eliminate confounding variables?

Yes, random assignment eliminates the influence of any confounding variables on the treatment because it distributes them at random among the study groups. Randomization invalidates any relationship between a confounding variable and the treatment.

Why is random assignment of participants to treatment conditions in an experiment used?

Random assignment is used to ensure that all groups are comparable at the start of a study. This allows researchers to conclude that the outcomes of the study can be attributed to the intervention at hand and to rule out alternative explanations for study results.

Further Reading

• Bogomolnaia, A., & Moulin, H. (2001). A new solution to the random assignment problem .  Journal of Economic theory ,  100 (2), 295-328.
• Krause, M. S., & Howard, K. I. (2003). What random assignment does and does not do .  Journal of Clinical Psychology ,  59 (7), 751-766.

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Chapter 6: Experimental Research

6.2 experimental design, learning objectives.

• Explain the difference between between-subjects and within-subjects experiments, list some of the pros and cons of each approach, and decide which approach to use to answer a particular research question.
• Define random assignment, distinguish it from random sampling, explain its purpose in experimental research, and use some simple strategies to implement it.
• Define what a control condition is, explain its purpose in research on treatment effectiveness, and describe some alternative types of control conditions.
• Define several types of carryover effect, give examples of each, and explain how counterbalancing helps to deal with them.

In this section, we look at some different ways to design an experiment. The primary distinction we will make is between approaches in which each participant experiences one level of the independent variable and approaches in which each participant experiences all levels of the independent variable. The former are called between-subjects experiments and the latter are called within-subjects experiments.

Between-Subjects Experiments

In a between-subjects experiment , each participant is tested in only one condition. For example, a researcher with a sample of 100 college students might assign half of them to write about a traumatic event and the other half write about a neutral event. Or a researcher with a sample of 60 people with severe agoraphobia (fear of open spaces) might assign 20 of them to receive each of three different treatments for that disorder. It is essential in a between-subjects experiment that the researcher assign participants to conditions so that the different groups are, on average, highly similar to each other. Those in a trauma condition and a neutral condition, for example, should include a similar proportion of men and women, and they should have similar average intelligence quotients (IQs), similar average levels of motivation, similar average numbers of health problems, and so on. This is a matter of controlling these extraneous participant variables across conditions so that they do not become confounding variables.

Random Assignment

The primary way that researchers accomplish this kind of control of extraneous variables across conditions is called random assignment , which means using a random process to decide which participants are tested in which conditions. Do not confuse random assignment with random sampling. Random sampling is a method for selecting a sample from a population, and it is rarely used in psychological research. Random assignment is a method for assigning participants in a sample to the different conditions, and it is an important element of all experimental research in psychology and other fields too.

In its strictest sense, random assignment should meet two criteria. One is that each participant has an equal chance of being assigned to each condition (e.g., a 50% chance of being assigned to each of two conditions). The second is that each participant is assigned to a condition independently of other participants. Thus one way to assign participants to two conditions would be to flip a coin for each one. If the coin lands heads, the participant is assigned to Condition A, and if it lands tails, the participant is assigned to Condition B. For three conditions, one could use a computer to generate a random integer from 1 to 3 for each participant. If the integer is 1, the participant is assigned to Condition A; if it is 2, the participant is assigned to Condition B; and if it is 3, the participant is assigned to Condition C. In practice, a full sequence of conditions—one for each participant expected to be in the experiment—is usually created ahead of time, and each new participant is assigned to the next condition in the sequence as he or she is tested. When the procedure is computerized, the computer program often handles the random assignment.

One problem with coin flipping and other strict procedures for random assignment is that they are likely to result in unequal sample sizes in the different conditions. Unequal sample sizes are generally not a serious problem, and you should never throw away data you have already collected to achieve equal sample sizes. However, for a fixed number of participants, it is statistically most efficient to divide them into equal-sized groups. It is standard practice, therefore, to use a kind of modified random assignment that keeps the number of participants in each group as similar as possible. One approach is block randomization . In block randomization, all the conditions occur once in the sequence before any of them is repeated. Then they all occur again before any of them is repeated again. Within each of these “blocks,” the conditions occur in a random order. Again, the sequence of conditions is usually generated before any participants are tested, and each new participant is assigned to the next condition in the sequence. Table 6.2 “Block Randomization Sequence for Assigning Nine Participants to Three Conditions” shows such a sequence for assigning nine participants to three conditions. The Research Randomizer website ( http://www.randomizer.org ) will generate block randomization sequences for any number of participants and conditions. Again, when the procedure is computerized, the computer program often handles the block randomization.

Table 6.2 Block Randomization Sequence for Assigning Nine Participants to Three Conditions

Random assignment is not guaranteed to control all extraneous variables across conditions. It is always possible that just by chance, the participants in one condition might turn out to be substantially older, less tired, more motivated, or less depressed on average than the participants in another condition. However, there are some reasons that this is not a major concern. One is that random assignment works better than one might expect, especially for large samples. Another is that the inferential statistics that researchers use to decide whether a difference between groups reflects a difference in the population takes the “fallibility” of random assignment into account. Yet another reason is that even if random assignment does result in a confounding variable and therefore produces misleading results, this is likely to be detected when the experiment is replicated. The upshot is that random assignment to conditions—although not infallible in terms of controlling extraneous variables—is always considered a strength of a research design.

Treatment and Control Conditions

Between-subjects experiments are often used to determine whether a treatment works. In psychological research, a treatment is any intervention meant to change people’s behavior for the better. This includes psychotherapies and medical treatments for psychological disorders but also interventions designed to improve learning, promote conservation, reduce prejudice, and so on. To determine whether a treatment works, participants are randomly assigned to either a treatment condition , in which they receive the treatment, or a control condition , in which they do not receive the treatment. If participants in the treatment condition end up better off than participants in the control condition—for example, they are less depressed, learn faster, conserve more, express less prejudice—then the researcher can conclude that the treatment works. In research on the effectiveness of psychotherapies and medical treatments, this type of experiment is often called a randomized clinical trial .

There are different types of control conditions. In a no-treatment control condition , participants receive no treatment whatsoever. One problem with this approach, however, is the existence of placebo effects. A placebo is a simulated treatment that lacks any active ingredient or element that should make it effective, and a placebo effect is a positive effect of such a treatment. Many folk remedies that seem to work—such as eating chicken soup for a cold or placing soap under the bedsheets to stop nighttime leg cramps—are probably nothing more than placebos. Although placebo effects are not well understood, they are probably driven primarily by people’s expectations that they will improve. Having the expectation to improve can result in reduced stress, anxiety, and depression, which can alter perceptions and even improve immune system functioning (Price, Finniss, & Benedetti, 2008).

Placebo effects are interesting in their own right (see Note 6.28 “The Powerful Placebo” ), but they also pose a serious problem for researchers who want to determine whether a treatment works. Figure 6.2 “Hypothetical Results From a Study Including Treatment, No-Treatment, and Placebo Conditions” shows some hypothetical results in which participants in a treatment condition improved more on average than participants in a no-treatment control condition. If these conditions (the two leftmost bars in Figure 6.2 “Hypothetical Results From a Study Including Treatment, No-Treatment, and Placebo Conditions” ) were the only conditions in this experiment, however, one could not conclude that the treatment worked. It could be instead that participants in the treatment group improved more because they expected to improve, while those in the no-treatment control condition did not.

Figure 6.2 Hypothetical Results From a Study Including Treatment, No-Treatment, and Placebo Conditions

Fortunately, there are several solutions to this problem. One is to include a placebo control condition , in which participants receive a placebo that looks much like the treatment but lacks the active ingredient or element thought to be responsible for the treatment’s effectiveness. When participants in a treatment condition take a pill, for example, then those in a placebo control condition would take an identical-looking pill that lacks the active ingredient in the treatment (a “sugar pill”). In research on psychotherapy effectiveness, the placebo might involve going to a psychotherapist and talking in an unstructured way about one’s problems. The idea is that if participants in both the treatment and the placebo control groups expect to improve, then any improvement in the treatment group over and above that in the placebo control group must have been caused by the treatment and not by participants’ expectations. This is what is shown by a comparison of the two outer bars in Figure 6.2 “Hypothetical Results From a Study Including Treatment, No-Treatment, and Placebo Conditions” .

Of course, the principle of informed consent requires that participants be told that they will be assigned to either a treatment or a placebo control condition—even though they cannot be told which until the experiment ends. In many cases the participants who had been in the control condition are then offered an opportunity to have the real treatment. An alternative approach is to use a waitlist control condition , in which participants are told that they will receive the treatment but must wait until the participants in the treatment condition have already received it. This allows researchers to compare participants who have received the treatment with participants who are not currently receiving it but who still expect to improve (eventually). A final solution to the problem of placebo effects is to leave out the control condition completely and compare any new treatment with the best available alternative treatment. For example, a new treatment for simple phobia could be compared with standard exposure therapy. Because participants in both conditions receive a treatment, their expectations about improvement should be similar. This approach also makes sense because once there is an effective treatment, the interesting question about a new treatment is not simply “Does it work?” but “Does it work better than what is already available?”

The Powerful Placebo

Many people are not surprised that placebos can have a positive effect on disorders that seem fundamentally psychological, including depression, anxiety, and insomnia. However, placebos can also have a positive effect on disorders that most people think of as fundamentally physiological. These include asthma, ulcers, and warts (Shapiro & Shapiro, 1999). There is even evidence that placebo surgery—also called “sham surgery”—can be as effective as actual surgery.

Medical researcher J. Bruce Moseley and his colleagues conducted a study on the effectiveness of two arthroscopic surgery procedures for osteoarthritis of the knee (Moseley et al., 2002). The control participants in this study were prepped for surgery, received a tranquilizer, and even received three small incisions in their knees. But they did not receive the actual arthroscopic surgical procedure. The surprising result was that all participants improved in terms of both knee pain and function, and the sham surgery group improved just as much as the treatment groups. According to the researchers, “This study provides strong evidence that arthroscopic lavage with or without débridement [the surgical procedures used] is not better than and appears to be equivalent to a placebo procedure in improving knee pain and self-reported function” (p. 85).

Research has shown that patients with osteoarthritis of the knee who receive a “sham surgery” experience reductions in pain and improvement in knee function similar to those of patients who receive a real surgery.

Army Medicine – Surgery – CC BY 2.0.

Within-Subjects Experiments

In a within-subjects experiment , each participant is tested under all conditions. Consider an experiment on the effect of a defendant’s physical attractiveness on judgments of his guilt. Again, in a between-subjects experiment, one group of participants would be shown an attractive defendant and asked to judge his guilt, and another group of participants would be shown an unattractive defendant and asked to judge his guilt. In a within-subjects experiment, however, the same group of participants would judge the guilt of both an attractive and an unattractive defendant.

The primary advantage of this approach is that it provides maximum control of extraneous participant variables. Participants in all conditions have the same mean IQ, same socioeconomic status, same number of siblings, and so on—because they are the very same people. Within-subjects experiments also make it possible to use statistical procedures that remove the effect of these extraneous participant variables on the dependent variable and therefore make the data less “noisy” and the effect of the independent variable easier to detect. We will look more closely at this idea later in the book.

Carryover Effects and Counterbalancing

The primary disadvantage of within-subjects designs is that they can result in carryover effects. A carryover effect is an effect of being tested in one condition on participants’ behavior in later conditions. One type of carryover effect is a practice effect , where participants perform a task better in later conditions because they have had a chance to practice it. Another type is a fatigue effect , where participants perform a task worse in later conditions because they become tired or bored. Being tested in one condition can also change how participants perceive stimuli or interpret their task in later conditions. This is called a context effect . For example, an average-looking defendant might be judged more harshly when participants have just judged an attractive defendant than when they have just judged an unattractive defendant. Within-subjects experiments also make it easier for participants to guess the hypothesis. For example, a participant who is asked to judge the guilt of an attractive defendant and then is asked to judge the guilt of an unattractive defendant is likely to guess that the hypothesis is that defendant attractiveness affects judgments of guilt. This could lead the participant to judge the unattractive defendant more harshly because he thinks this is what he is expected to do. Or it could make participants judge the two defendants similarly in an effort to be “fair.”

Carryover effects can be interesting in their own right. (Does the attractiveness of one person depend on the attractiveness of other people that we have seen recently?) But when they are not the focus of the research, carryover effects can be problematic. Imagine, for example, that participants judge the guilt of an attractive defendant and then judge the guilt of an unattractive defendant. If they judge the unattractive defendant more harshly, this might be because of his unattractiveness. But it could be instead that they judge him more harshly because they are becoming bored or tired. In other words, the order of the conditions is a confounding variable. The attractive condition is always the first condition and the unattractive condition the second. Thus any difference between the conditions in terms of the dependent variable could be caused by the order of the conditions and not the independent variable itself.

There is a solution to the problem of order effects, however, that can be used in many situations. It is counterbalancing , which means testing different participants in different orders. For example, some participants would be tested in the attractive defendant condition followed by the unattractive defendant condition, and others would be tested in the unattractive condition followed by the attractive condition. With three conditions, there would be six different orders (ABC, ACB, BAC, BCA, CAB, and CBA), so some participants would be tested in each of the six orders. With counterbalancing, participants are assigned to orders randomly, using the techniques we have already discussed. Thus random assignment plays an important role in within-subjects designs just as in between-subjects designs. Here, instead of randomly assigning to conditions, they are randomly assigned to different orders of conditions. In fact, it can safely be said that if a study does not involve random assignment in one form or another, it is not an experiment.

There are two ways to think about what counterbalancing accomplishes. One is that it controls the order of conditions so that it is no longer a confounding variable. Instead of the attractive condition always being first and the unattractive condition always being second, the attractive condition comes first for some participants and second for others. Likewise, the unattractive condition comes first for some participants and second for others. Thus any overall difference in the dependent variable between the two conditions cannot have been caused by the order of conditions. A second way to think about what counterbalancing accomplishes is that if there are carryover effects, it makes it possible to detect them. One can analyze the data separately for each order to see whether it had an effect.

When 9 Is “Larger” Than 221

Researcher Michael Birnbaum has argued that the lack of context provided by between-subjects designs is often a bigger problem than the context effects created by within-subjects designs. To demonstrate this, he asked one group of participants to rate how large the number 9 was on a 1-to-10 rating scale and another group to rate how large the number 221 was on the same 1-to-10 rating scale (Birnbaum, 1999). Participants in this between-subjects design gave the number 9 a mean rating of 5.13 and the number 221 a mean rating of 3.10. In other words, they rated 9 as larger than 221! According to Birnbaum, this is because participants spontaneously compared 9 with other one-digit numbers (in which case it is relatively large) and compared 221 with other three-digit numbers (in which case it is relatively small).

Simultaneous Within-Subjects Designs

So far, we have discussed an approach to within-subjects designs in which participants are tested in one condition at a time. There is another approach, however, that is often used when participants make multiple responses in each condition. Imagine, for example, that participants judge the guilt of 10 attractive defendants and 10 unattractive defendants. Instead of having people make judgments about all 10 defendants of one type followed by all 10 defendants of the other type, the researcher could present all 20 defendants in a sequence that mixed the two types. The researcher could then compute each participant’s mean rating for each type of defendant. Or imagine an experiment designed to see whether people with social anxiety disorder remember negative adjectives (e.g., “stupid,” “incompetent”) better than positive ones (e.g., “happy,” “productive”). The researcher could have participants study a single list that includes both kinds of words and then have them try to recall as many words as possible. The researcher could then count the number of each type of word that was recalled. There are many ways to determine the order in which the stimuli are presented, but one common way is to generate a different random order for each participant.

Between-Subjects or Within-Subjects?

Almost every experiment can be conducted using either a between-subjects design or a within-subjects design. This means that researchers must choose between the two approaches based on their relative merits for the particular situation.

Between-subjects experiments have the advantage of being conceptually simpler and requiring less testing time per participant. They also avoid carryover effects without the need for counterbalancing. Within-subjects experiments have the advantage of controlling extraneous participant variables, which generally reduces noise in the data and makes it easier to detect a relationship between the independent and dependent variables.

A good rule of thumb, then, is that if it is possible to conduct a within-subjects experiment (with proper counterbalancing) in the time that is available per participant—and you have no serious concerns about carryover effects—this is probably the best option. If a within-subjects design would be difficult or impossible to carry out, then you should consider a between-subjects design instead. For example, if you were testing participants in a doctor’s waiting room or shoppers in line at a grocery store, you might not have enough time to test each participant in all conditions and therefore would opt for a between-subjects design. Or imagine you were trying to reduce people’s level of prejudice by having them interact with someone of another race. A within-subjects design with counterbalancing would require testing some participants in the treatment condition first and then in a control condition. But if the treatment works and reduces people’s level of prejudice, then they would no longer be suitable for testing in the control condition. This is true for many designs that involve a treatment meant to produce long-term change in participants’ behavior (e.g., studies testing the effectiveness of psychotherapy). Clearly, a between-subjects design would be necessary here.

Remember also that using one type of design does not preclude using the other type in a different study. There is no reason that a researcher could not use both a between-subjects design and a within-subjects design to answer the same research question. In fact, professional researchers often do exactly this.

Key Takeaways

• Experiments can be conducted using either between-subjects or within-subjects designs. Deciding which to use in a particular situation requires careful consideration of the pros and cons of each approach.
• Random assignment to conditions in between-subjects experiments or to orders of conditions in within-subjects experiments is a fundamental element of experimental research. Its purpose is to control extraneous variables so that they do not become confounding variables.
• Experimental research on the effectiveness of a treatment requires both a treatment condition and a control condition, which can be a no-treatment control condition, a placebo control condition, or a waitlist control condition. Experimental treatments can also be compared with the best available alternative.

Discussion: For each of the following topics, list the pros and cons of a between-subjects and within-subjects design and decide which would be better.

• You want to test the relative effectiveness of two training programs for running a marathon.
• Using photographs of people as stimuli, you want to see if smiling people are perceived as more intelligent than people who are not smiling.
• In a field experiment, you want to see if the way a panhandler is dressed (neatly vs. sloppily) affects whether or not passersby give him any money.
• You want to see if concrete nouns (e.g., dog ) are recalled better than abstract nouns (e.g., truth ).
• Discussion: Imagine that an experiment shows that participants who receive psychodynamic therapy for a dog phobia improve more than participants in a no-treatment control group. Explain a fundamental problem with this research design and at least two ways that it might be corrected.

Birnbaum, M. H. (1999). How to show that 9 > 221: Collect judgments in a between-subjects design. Psychological Methods, 4 , 243–249.

Moseley, J. B., O’Malley, K., Petersen, N. J., Menke, T. J., Brody, B. A., Kuykendall, D. H., … Wray, N. P. (2002). A controlled trial of arthroscopic surgery for osteoarthritis of the knee. The New England Journal of Medicine, 347 , 81–88.

Price, D. D., Finniss, D. G., & Benedetti, F. (2008). A comprehensive review of the placebo effect: Recent advances and current thought. Annual Review of Psychology, 59 , 565–590.

Shapiro, A. K., & Shapiro, E. (1999). The powerful placebo: From ancient priest to modern physician . Baltimore, MD: Johns Hopkins University Press.

• Research Methods in Psychology. Provided by : University of Minnesota Libraries Publishing. Located at : http://open.lib.umn.edu/psychologyresearchmethods . License : CC BY-NC-SA: Attribution-NonCommercial-ShareAlike

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The Definition of Random Assignment According to Psychology

Kendra Cherry, MS, is a psychosocial rehabilitation specialist, psychology educator, and author of the "Everything Psychology Book."

Emily is a board-certified science editor who has worked with top digital publishing brands like Voices for Biodiversity, Study.com, GoodTherapy, Vox, and Verywell.

Materio / Getty Images

Random assignment refers to the use of chance procedures in psychology experiments to ensure that each participant has the same opportunity to be assigned to any given group in a study to eliminate any potential bias in the experiment at the outset. Participants are randomly assigned to different groups, such as the treatment group versus the control group. In clinical research, randomized clinical trials are known as the gold standard for meaningful results.

Simple random assignment techniques might involve tactics such as flipping a coin, drawing names out of a hat, rolling dice, or assigning random numbers to a list of participants. It is important to note that random assignment differs from random selection .

While random selection refers to how participants are randomly chosen from a target population as representatives of that population, random assignment refers to how those chosen participants are then assigned to experimental groups.

Random Assignment In Research

To determine if changes in one variable will cause changes in another variable, psychologists must perform an experiment. Random assignment is a critical part of the experimental design that helps ensure the reliability of the study outcomes.

Researchers often begin by forming a testable hypothesis predicting that one variable of interest will have some predictable impact on another variable.

The variable that the experimenters will manipulate in the experiment is known as the independent variable , while the variable that they will then measure for different outcomes is known as the dependent variable. While there are different ways to look at relationships between variables, an experiment is the best way to get a clear idea if there is a cause-and-effect relationship between two or more variables.

Once researchers have formulated a hypothesis, conducted background research, and chosen an experimental design, it is time to find participants for their experiment. How exactly do researchers decide who will be part of an experiment? As mentioned previously, this is often accomplished through something known as random selection.

Random Selection

In order to generalize the results of an experiment to a larger group, it is important to choose a sample that is representative of the qualities found in that population. For example, if the total population is 60% female and 40% male, then the sample should reflect those same percentages.

Choosing a representative sample is often accomplished by randomly picking people from the population to be participants in a study. Random selection means that everyone in the group stands an equal chance of being chosen to minimize any bias. Once a pool of participants has been selected, it is time to assign them to groups.

By randomly assigning the participants into groups, the experimenters can be fairly sure that each group will have the same characteristics before the independent variable is applied.

Participants might be randomly assigned to the control group , which does not receive the treatment in question. The control group may receive a placebo or receive the standard treatment. Participants may also be randomly assigned to the experimental group , which receives the treatment of interest. In larger studies, there can be multiple treatment groups for comparison.

There are simple methods of random assignment, like rolling the die. However, there are more complex techniques that involve random number generators to remove any human error.

There can also be random assignment to groups with pre-established rules or parameters. For example, if you want to have an equal number of men and women in each of your study groups, you might separate your sample into two groups (by sex) before randomly assigning each of those groups into the treatment group and control group.

Random assignment is essential because it increases the likelihood that the groups are the same at the outset. With all characteristics being equal between groups, other than the application of the independent variable, any differences found between group outcomes can be more confidently attributed to the effect of the intervention.

Example of Random Assignment

Imagine that a researcher is interested in learning whether or not drinking caffeinated beverages prior to an exam will improve test performance. After randomly selecting a pool of participants, each person is randomly assigned to either the control group or the experimental group.

The participants in the control group consume a placebo drink prior to the exam that does not contain any caffeine. Those in the experimental group, on the other hand, consume a caffeinated beverage before taking the test.

Participants in both groups then take the test, and the researcher compares the results to determine if the caffeinated beverage had any impact on test performance.

A Word From Verywell

Random assignment plays an important role in the psychology research process. Not only does this process help eliminate possible sources of bias, but it also makes it easier to generalize the results of a tested sample of participants to a larger population.

Random assignment helps ensure that members of each group in the experiment are the same, which means that the groups are also likely more representative of what is present in the larger population of interest. Through the use of this technique, psychology researchers are able to study complex phenomena and contribute to our understanding of the human mind and behavior.

Lin Y, Zhu M, Su Z. The pursuit of balance: An overview of covariate-adaptive randomization techniques in clinical trials . Contemp Clin Trials. 2015;45(Pt A):21-25. doi:10.1016/j.cct.2015.07.011

Sullivan L. Random assignment versus random selection . In: The SAGE Glossary of the Social and Behavioral Sciences. SAGE Publications, Inc.; 2009. doi:10.4135/9781412972024.n2108

Alferes VR. Methods of Randomization in Experimental Design . SAGE Publications, Inc.; 2012. doi:10.4135/9781452270012

Nestor PG, Schutt RK. Research Methods in Psychology: Investigating Human Behavior. (2nd Ed.). SAGE Publications, Inc.; 2015.

By Kendra Cherry, MSEd Kendra Cherry, MS, is a psychosocial rehabilitation specialist, psychology educator, and author of the "Everything Psychology Book."

Exercising Options

The holder of an american-style option can exercise his right to buy (in the case of a call) or to sell (in the case of a put) the underlying shares of stock. .

They first must direct their brokerage firm to submit an exercise notice to OCC. For an option holder to ensure that they exercise the option on that particular day, the holder must notify his brokerage firm before that day’s cut-off time for accepting exercise instructions.

The brokerage firm notifies OCC that an option holder wishes to exercise an option. OCC then randomly assigns the exercise notice to a clearing member. For an investor, this is generally his brokerage firm chosen at random from a total pool of such firms. The firm must then assign one of its customers who has written (and not covered) that particular option.

Assignment to a customer is either random or on a first-in-first-out basis. This depends on the firm’s method. Ask your brokerage firm which method it uses for assignments.

The holder of an American-style option contract can exercise the option at any time before expiration. Therefore, an option writer may be assigned an exercise notice on a short option position at any time before expiration. If an option writer is short an option that expires in-the-money, they should expect assignment on that contract, though assignment is not guaranteed as some long in-the-money option holders may elect not to exercise in-the-money options. In fact, some option writers are assigned on short contracts when they expire exactly at-the-money or even out-of-the money. This occurrence is usually not predictable.

To avoid assignment on a written option contract on a given day, the position must be closed out before that day's market close. Once assignment is received, an investor has no alternative but to fulfill assignment obligations per the terms of the contract.

There is generally no exercise or assignment activity on options that expire out-of-the-money. Owners usually let them expire with no value. Although this is not always the case as post-market underlying moves may lead to out-of-the-money options being exercised and in-the-money options not being exercised.

READ MORE ON ASSIGNMENT (PDF)

What's the Net?

When an investor exercises a call option, the net price paid for the underlying stock on a per share basis is the sum of the call's strike price plus the premium paid for the call. Likewise, when an investor who has written a call contract is assigned an exercise notice on that call, the net price received on per share basis is the sum of the call's strike price plus the premium received from the call's initial sale.

When an investor exercises a put option, the net price received for the underlying stock on per share basis is the sum of the put's strike price less the premium paid for the put. Likewise, when an investor who has written a put contract is assigned an exercise notice on that put, the net price paid for the underlying stock on per share basis is the sum of the put's strike price less the premium received from the put's initial sale.

Early Exercise/Assignment

For call contracts, owners might exercise early to own the underlying stock to receive a dividend. Check with your brokerage firm on the advisability of early call exercise.

It is extremely important to realize that assignment of exercise notices can occur early, days or weeks in advance of expiration day. Investors should expect this as expiration nears with a call considerably in-the-money and a sizeable dividend payment approaching. Call writers should be aware of dividend dates and the possibility of early assignment.

When puts become deep in-the-money, most professional option traders exercise before expiration. Therefore, investors with short positions in deep in-the-money puts should be prepared for the possibility of early assignment on these contracts.

Volatility is the tendency of the underlying security's market price to fluctuate up or down. It reflects a price change's magnitude. It does not imply a bias toward price movement in one direction or the other. It is a major factor in determining an option's premium.

The higher the volatility of the underlying stock, the higher the premium. This is because there is a greater possibility that the option will move in-the-money. Generally, as the volatility of an underlying stock increases, the premiums of both calls and puts overlying that stock increase and vice versa.

Assignment in Options Trading

Introduction articles, what is an options assignment.

In options trading , an assignment occurs when an option is exercised.   

As we know, a buyer of an option has the right but not the obligation to buy or sell an underlying asset depending on what option they have purchased. When the buyer exercises this right, the seller will be assigned and will have to deliver or take delivery of what they are contractually obliged to. For stock options, it is typically 1 , 000 shares per contract for the UK ; and 100 shares per contract in the US.   

As you can see, a buyer will never be assigned, only the seller is at risk of assignment. The buyer, however, may be auto exercised if the option expires in-the-money .

The Mechanics of Assignment

Assignment of options isn’t a random process. It’s a methodical procedure that follows specific steps, typically beginning with the option holder’s decision to exercise their option. The decision then gets routed through various intermediaries like brokers and clearing +houses before the seller is notified.

• Exercise by Holder: The holder (buyer) of the option exercises their right to buy (for Call ) or sell (for Put ).
• Random Assignment by a Clearing House: A clearing house assigns the obligation randomly among all sellers of the option.
• Fulfilment by the Writer: The writer (seller) now must fulfill the obligation to sell (for Call) or buy (for Put) the underlying asset.

Option Assignments: Calls and Puts

Call option assignments.

When a call option holder chooses to exercise their right, the seller of the call option gets assigned. In such a situation, the seller is obligated to sell the underlying asset at the strike price to the call option holder.

Put Option Assignments

Similarly, if a put option holder decides to exercise their right, the put option seller gets assigned. The seller is then obligated to buy the underlying asset at the strike price from the put option holder.

The Implications of Assignments for Options Traders

Understanding assignment in options trading is crucial as it comes with potential risks and rewards for both parties involved.

For Option Sellers

Option sellers, or ‘writers,’ face the risk of unexpected assignments. The risk of being assigned early is especially present for options that are in the money or near their expiration date. We explain the difference between American and European assignments below.

For Option Holders

For option holders, deciding when to exercise an option (potentially leading to assignment) is a strategic decision. This decision must consider factors such as the intrinsic value of the option, the time value, and the dividend payment of the underlying asset.

Can Options be assigned before expiration?

In short, Yes, but it depends on the style of options you are trading. 

American Style – Yes, this type of option can be assigned on or before expiry. 

European Style – No, this type of option can only be assigned on the expiry date as defined in the contract specifications.

Options Assignment Example

For example, an investor buys XYZ PLC 400 call when the stock is trading at 385. The stock in the coming weeks rises to 425 after some good news, the buyer then decides to exercise their right early to buy the XYZ PLC stock at 400.  

In this scenario, the call seller (writer) has been assigned and will have to deliver stock at 400 to the buyer (sell their stock at 400 when the prevailing market is 425).   

An option typically would only be assigned if it is in the money, considering factors like dividends which do play an important role in exercise/assignments.

Can an Options Assignment be Prevented?

Assignment can sometimes come as a bit of a surprise but normally you should see it coming. You can only work to prevent assignment by closing the option before expiry or before any possible risk of assignment.

Managing Risks in Options Trading

While options trading can offer high returns, it is not devoid of risks. Therefore, understanding and managing these risks is key.  

Buyers Risk: The premium paid for an option is at risk. If the option is not profitable at expiration, the premium is lost.  

Writers Risk: The writer takes on a much larger risk. If a call option is assigned, they must sell the underlying asset at the strike price, even if its market price is higher.

Options Assignment Summary

The concept of ‘assignment’ in options trading, although complex, is a cornerstone of understanding options trading. It not only clarifies the responsibilities of an options seller but also helps the traders to gauge and manage their risks more effectively. Successful trading involves not just knowing your options but also understanding your obligations.

Options Assignment FAQs

What is options assignment.

Options assignment refers to the process by which the seller (writer) of an options contract is obligated to fulfill their contractual obligation to buy or sell the underlying asset, as specified by the terms of the options contract.

When does options assignment occur?

Options assignment can occur when the buyer of the options contract exercises their right to buy (in the case of a call option) or sell (in the case of a put option) the underlying asset before or at expiration .

How does options assignment work?

When a buyer exercises their options contract, a clearing house randomly assigns a seller who is short (has written) the same options contract to fulfill the obligations of the exercise.

What happens to the seller upon options assignment?

If assigned, the seller (writer) of the options contract is obligated to fulfill their contractual obligation by buying or selling the underlying asset at the specified price (strike price) per the terms of the options contract.

Can options be assigned before expiration?

Yes, options can be assigned at any time (depending on contract type) before expiration if the buyer chooses to exercise their right. However, it is more common for options to be assigned closer to expiration as the time value diminishes.

What factors determine options assignment?

Options assignment is determined by the buyer’s decision to exercise their options contract. They may choose to exercise if the options contract is in-the- money and it is financially advantageous for them to do so.

How can I avoid options assignment? 

As a seller (writer) of options contracts, you can avoid assignment by closing your position before expiration through a closing trade (buying back the options contract) or rolling it over to a future expiration date.

What happens if I am assigned on a short call option?

If assigned on a short call option, you are obligated to sell the underlying asset at the specified price (strike price). This means you would need to deliver the shares . To fulfill this obligation, you may need to buy the shares in the open market if you do not hold them .

What happens if I am assigned on a short put option?

If assigned on a short put option, you are obligated to buy the underlying asset at the specified price (strike price). This means you would need to purchase the shares .  

How does options assignment affect my account?

Options assignment can impact your account by requiring you to fulfill the obligations of the assigned options contract, which may involve buying or selling the underlying asset. It is important to have sufficient funds or margin available to cover these obligations.

OptionsDesk Tips & Considerations

You should always have enough funds in your account to cover any assignment risk. If you have a short call position and it is in-the-money at the time of an ex-dividend be aware of extra assignment risk here as buyer/holder of the option may look to exercise to qualify for the dividend. Assignments can happen at any time!

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AP®︎/College Statistics

Course: ap®︎/college statistics   >   unit 6.

• Statistical significance of experiment

Random sampling vs. random assignment (scope of inference)

• Conclusions in observational studies versus experiments
• Finding errors in study conclusions

• (Choice A)   Just the residents involved in Hilary's study. A Just the residents involved in Hilary's study.
• (Choice B)   All residents in Hilary's town. B All residents in Hilary's town.
• (Choice C)   All residents in Hilary's country. C All residents in Hilary's country.
• (Choice A)   Yes A Yes
• (Choice B)   No B No
• (Choice A)   Just the residents in Hilary's study. A Just the residents in Hilary's study.

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As previously mentioned, one of the characteristics of a true experiment is that researchers use a random process to decide which participants are tested under which conditions. Random assignation is a powerful research technique that addresses the assumption of pre-test equivalence – that the experimental and control group are equal in all respects before the administration of the independent variable (Palys & Atchison, 2014).

Random assignation is the primary way that researchers attempt to control extraneous variables across conditions. Random assignation is associated with experimental research methods. In its strictest sense, random assignment should meet two criteria.  One is that each participant has an equal chance of being assigned to each condition (e.g., a 50% chance of being assigned to each of two conditions). The second is that each participant is assigned to a condition independently of other participants. Thus, one way to assign participants to two conditions would be to flip a coin for each one. If the coin lands on the heads side, the participant is assigned to Condition A, and if it lands on the tails side, the participant is assigned to Condition B. For three conditions, one could use a computer to generate a random integer from 1 to 3 for each participant. If the integer is 1, the participant is assigned to Condition A; if it is 2, the participant is assigned to Condition B; and, if it is 3, the participant is assigned to Condition C. In practice, a full sequence of conditions—one for each participant expected to be in the experiment—is usually created ahead of time, and each new participant is assigned to the next condition in the sequence as he or she is tested.

However, one problem with coin flipping and other strict procedures for random assignment is that they are likely to result in unequal sample sizes in the different conditions. Unequal sample sizes are generally not a serious problem, and you should never throw away data you have already collected to achieve equal sample sizes. However, for a fixed number of participants, it is statistically most efficient to divide them into equal-sized groups. It is standard practice, therefore, to use a kind of modified random assignment that keeps the number of participants in each group as similar as possible.

One approach is block randomization. In block randomization, all the conditions occur once in the sequence before any of them is repeated. Then they all occur again before any of them is repeated again. Within each of these “blocks,” the conditions occur in a random order. Again, the sequence of conditions is usually generated before any participants are tested, and each new participant is assigned to the next condition in the sequence. When the procedure is computerized, the computer program often handles the random assignment, which is obviously much easier. You can also find programs online to help you randomize your random assignation. For example, the Research Randomizer website will generate block randomization sequences for any number of participants and conditions ( Research Randomizer ).

Random assignation is not guaranteed to control all extraneous variables across conditions. It is always possible that, just by chance, the participants in one condition might turn out to be substantially older, less tired, more motivated, or less depressed on average than the participants in another condition. However, there are some reasons that this may not be a major concern. One is that random assignment works better than one might expect, especially for large samples. Another is that the inferential statistics that researchers use to decide whether a difference between groups reflects a difference in the population take the “fallibility” of random assignment into account. Yet another reason is that even if random assignment does result in a confounding variable and therefore produces misleading results, this confound is likely to be detected when the experiment is replicated. The upshot is that random assignment to conditions—although not infallible in terms of controlling extraneous variables—is always considered a strength of a research design. Note: Do not confuse random assignation with random sampling. Random sampling is a method for selecting a sample from a population; we will talk about this in Chapter 7.

Research Methods, Data Collection and Ethics Copyright © 2020 by Valerie Sheppard is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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What is Options Assignment & How to Avoid It

If you are learning about options, assignment might seem like a scary topic. In this article, you will learn why it really isn’t. I will break down the entire options assignment process step by step and show you when you might be assigned, how to minimize the risk of being assigned, and what to do if you are assigned.

Video Breakdown of Options Assignment

Check out the following video in which I explain everything you need to know about assignment:

What is Assignment?

To understand assignment, we must first remember what options allow you to do. So let’s start with a brief recap:

• A call option gives its buyer the right to buy 100 shares of the underlying at the strike price
• A put option gives its buyer the right to sell 100 shares of the underlying at the strike price

In other words, call options allow you to call away shares of the underlying from someone else, whereas a put option allows you to put shares in someone else’s account. Hence the name call and put option.

The assignment process is the selection of the other party of this transaction. So the person that has to buy from or sell to the option buyer that exercised their option.

Note that an option buyer has the right to exercise their option. It is not an obligation and therefore, a buyer of an option can never be assigned. Only option sellers can ever be get assigned since they agree to fulfill this obligation when they sell an option.

Let’s go through a specific example to clarify this:

• The underlying security is stock ABC and it is trading at $100.
• Peter decides to buy 1 put option with a strike price of 95 as a hedge for his long stock position in ABC
• Kate sells this exact same option at the same time.

Over the next few weeks, ABC’s price goes down to $90 and Peter decides to exercise his put option. This means that he uses his right to sell 100 shares of ABC for $95 per share. Now Kate is assigned these 100 shares of ABC which means she is obligated to buy them for $95 per share. 

Peter now has 100 fewer shares of ABC in his portfolio, whereas Kate has 100 more.

This process is analog for a call option with the only difference being that Kate would be short 100 shares and Peter would have 100 additional shares of ABC in his portfolio.

Hopefully, this example clarifies what assignment is.

Who Can Be Assigned?

To answer this question, we must first ask ourselves who exercises their option? To do this, let’s quickly look at the different ways that you can close a long option position:

• Sell the option: Selling an option is probably the easiest way to close a long option position. Doing this will have no effect on the option seller.
• Let the option expire: If the option is Out of The Money , it would expire worthless and there would be no consequence for the option seller. If, on the other hand, the option is In The Money by more than $0.01, it would typically be automatically exercised . This would start the options assignment process.
• Exercise the option early: The last possibility would be to exercise the option before its expiration date. This, however, can only be done if the option is an American-style option. This would, once again, lead to an option assignment.

So as an option seller, you only have to worry about the last two possibilities in which the buyer’s option is exercised. 

But before you worry too much, here is a quick fact about the distribution of these 3 alternatives:

Less than 10% of all options are exercised.

This means 90% of all options are either sold prior to the expiration date or expire worthless. So always remember this statistic before breaking your head over the risk of being assigned.

It is very easy to avoid the first case of being assigned. To avoid it, just close your short option positions before they expire (ITM). For the second case, however, things aren’t as straight forward.

Who Risks being Assigned Early?

Firstly, you have to be trading American-style options. European-style options can only be exercised on their expiration date. But most equity options are American-style anyway. So unless you are trading index options or other kinds of European-style options, this will be the case for you.

Secondly, you need to be an options seller. Option buyers can’t be assigned.

These two are necessary conditions for you to be assigned. Everyone who fulfills both of these conditions risks getting assigned early. The size of this risk, however, varies depending on your position. Here are a few things that can dramatically increase your assignment risk:

• ITM: If your option is ITM, the chance of being assigned is much higher than if it isn’t. From the standpoint of an option buyer, it does not make sense to exercise an option that isn’t ITM because this would lead to a loss. Nevertheless, it is possible. The deeper ITM the option is, the higher the assignment risk becomes.
• Dividends : Besides that, selling options on securities with upcoming dividends also increases your risk of assignment. More specifically, if the extrinsic value of an ITM call option is less than the amount of the dividend, option buyers can achieve a profit by exercising their option before the ex-dividend date. 
• Extrinsic Value: Otherwise, keep an eye on the extrinsic value of your option. If the option has extrinsic value left, it doesn’t make sense for the option buyer to exercise their option because they would achieve a higher profit if they just sold the option and then bought or sold shares of the underlying asset. Typically, the less time an option has left, the lower its extrinsic value becomes. Implied volatility is another factor that influences extrinsic value.
• Puts vs Calls: This is more of an interesting side note than actual advice, but put options tend to get exercised more often than call options. This makes sense since put options give their buyer the right to sell the underlying asset and can, therefore, be a very useful hedge for long stock positions.

How can you Minimize Assignment Risk?

Since you now know what assignment is, and who risks being assigned, let’s shift our focus on how to minimize the assignment risk. Even though it isn’t possible to completely remove the risk of being assigned, there are things that you can do to dramatically decrease the chances of being assigned.

The first thing would be to avoid selling options on securities with upcoming dividend payments. Before putting on a position, simply check if the underlying security has any upcoming dividend payments. If so, look for a different trade.

If you ever are in the position that you are short an option and the ex-dividend of the underlying security is right around the corner, compare the size of the dividend to the extrinsic value of your option. If the extrinsic value is less than the dividend amount, you really should consider closing the position. Otherwise, the chances of being assigned are high. This is especially bad since being short during a dividend payment of a security will force you to pay the dividend.

Besides avoiding dividends, you should also close your option positions early. The less time an option has left, the lower its extrinsic value becomes and the more it makes sense for option buyers to exercise their options. Therefore, it is good practice to close your (ITM) short option positions at least one week before the expiration date.

The deeper an option is ITM, the higher the chances of assignment become. So the just-mentioned rule is even more important for deep ITM options.

If you don’t want to indefinitely close your position, it is also possible to roll it out to a later expiration cycle. This will give you more time and add extrinsic value to your position.

FAQs about Assignment

Last but not least, I want to answer some frequently asked questions about options exercise and assignment.

1. What happens if your account does not have enough buying power to cover the assigned position?

This is a common worry for beginning options traders. But don’t worry, if you don’t have enough capital to cover the new position, you will receive a margin call and usually, your broker will just automatically close the assigned shares immediately. This might lead to a minor assignment fee, but otherwise, it won’t significantly affect your account. Tatsyworks, for example, charges an assignment fee of only $5.

Check out my review of tastyworks

2. How does assignment affect your P&L?

When an option is exercised, the option holder gains the difference between the strike price and the price of the underlying asset. If the option is ITM, this is exactly the intrinsic value of the option. This means that the option holder loses the extrinsic value when he exercises his/her option. That’s also why it doesn’t make sense to exercise options with a lot of extrinsic value left.

This means that as soon as the option is exercised, it is only the intrinsic value that is relevant for the payoff. This is the same payoff as the option at its expiration date.

So as an options seller, your P&L isn’t negatively affected by an assignment. Either it stays the same or it becomes slightly better due to the extrinsic value being ignored.

As an example, if your option is ITM by $1, you will lose up to $100 per option or $1 per share that you are assigned. But this does not account for the extrinsic value that falls away with the exercise of the option. So this would be the same P&L as at expiration. Depending on how much premium you collected when selling the option, this might still be a profit or a minor loss.

With that being said, as soon as you are assigned, you will have some carrying risk. If you don’t or can’t close the position immediately, you will be exposed to the ongoing price fluctuations of that security.  Sometimes, you might not be able to close the new position immediately because of trading halts, or because the market is closed.

If you weren’t planning on holding that security, it is a good idea to close the new position as soon as possible. 

Option spreads such as vertical spreads, add protection to these price fluctuations since you can just exercise the long option to close the assigned share position at the strike price of the long option.

3. When an option holder exercises their option, how is the assignment partner chosen?

This is usually a random process. As soon as an option is exercised, the responsible brokerage firm sends a request to the Options Clearing Corporation (OCC). They send back the requested shares, whereafter they randomly choose another brokerage firm that currently has a client that is short the exercised option. Then the chosen broker has to decide which of their clients is assigned. This choice is, once again, random or a time-based priority system is used.

4. How does assignment work for index options?

As there aren’t any shares of indexes, you can’t directly be assigned any shares of the underlying asset. Therefore, index options are cash-settled. This means that instead of having to buy or sell shares of the underlying, you simply have to pay the difference between the strike price and the underlying trading price. This makes assignment easier and a lot less likely among index options.

Note that ETF options such as SPY options are not cash-settled. SPY is a normal security with openly traded shares, so exercise and assignment work just like they do among equity options.

I hope this article made you realize that assignment isn’t as bad as it might seem at first. It is just important to understand how the options assignment process works and what affects the likelihood of being assigned.

To recap, here’s what you should to do when you are assigned:

if you have enough capital in your account to cover the position, you could either treat the new position as a normal (stock) position and hold on to it or you could close it immediately. If you don’t have a clear trading plan for the new position, I recommend the latter.

If, on the other hand, you don’t have enough buying power, you will receive a margin call from your broker and the position should be closed automatically.

Assignment does not have any significant impact on your P&L, but it comes with some carrying risk. Options spreads can offer more protection against this than naked option positions.

To mitigate assignment risk, you should close option positions early, always keep an eye on the extrinsic value of your option positions, and avoid upcoming dividend securities.

And always remember, less than 10% of options are exercised, so assignment really doesn’t happen that often, especially not if you are actively trying to avoid it.

For the specifics of how assignment is handled, it is a good idea to contact your broker, as the procedures can vary from broker to broker.

Thank you for taking the time and reading this post. If you have any questions, comments, or feedback, please let me know in the comment section below.

22 Replies to “What is Options Assignment & How to Avoid It”

hi there well seems like finally there is one good honest place. seem like you are puting on the table the whole truth about bad positions. however my wuestion is when can one know where to put that line of limit. when do you recognise or understand that you are in a bad position? thanks and once again, a great site.

Well If you are trading a risk defined strategy the point would be at max loss and not too much time left until expiration. For undefined risk strategies however it can be very different. I would just say if you don’t have too much time until expiration and are far from making money you should use some common sense and admit that you are wrong.

What would happen in the event of a crash. Would brokers be assigning, options, cashing out these shares, and making others bankrupt. Well, I guessed I sort of answered my own question. Its not easy to understand, especially not knowing when this would come up. But seems like you hit the important aspects of the agreement.

Actually I wouldn’t imagine that too many people would want to exercise their options in case of a market ctash, because they probably wouldn’t want to hold stocks in this risky and volatile environment. 

And to the part of the questions: making others bankrupt. This really depends on the situation. You can’t get assigned more stock than your option covers. This means as long as you trade with reasonable position sizing nothing too bad can happen. Otherwise I would recommend to trade with defined risk strategies so your maximum drawdown is capped.

Thanks for writing about assignment Louis. After reading the section how assignment works, I feel I am somewhat unclear about how assignment works when the exerciser exercises Put or Call option. In both cases, if the underlying is an index, is the settlement done through the margin account money? Would you be able to provide a little more detail of how exercising the option (Put vs Call) would work in case of an underlying stock vs Index.

Thank you very much in advance

Thanks for the question. Indexes can’t be traded in the same way as stocks can. That’s why index options are settled in cash. If your index option is assigned, you won’t have to buy or sell any shares of the underlying index at the strike price because there exist no shares of indexes. Instead, you have to pay the amount that your index option is ITM to the exerciser of your option. Let me give you an example: You are short a call option with the strike price of 1000. The underlying asset is an index and it’s price is 1050. This means your call option is 50 points ITM. If someone exercises your long call option, you will have to pay him/her the difference between the strike price and the underlying’s price which would be 50 (1050-1000). So the main difference between index and stock options is that you don’t have to buy/sell any shares of the underlying asset for index options. I hope this helps. Please let me know if you have any other questions or comments.

Can the same logic be applied for ETFs as it does Indexes? For example, if I trade the SPY ETF, would it be settled in cash?

Thanks! Johnson

Hi Johnson, Exercise and assignment for ETFs such as SPY work just like they do for equities. ETFs have shares that are openly traded, whereas indexes don’t. That’s why indexes are settled in cash, whereas ETFs aren’t. I hope this helps.

There are many articles online that I read that are biased against options tradings and I am a bit surprised to read a really helpful article like this. I find this helpful in understanding options trading, what are the techniques and how to manage the risks. Before, I was hesitant to try this financial game but now, after reading this article, I am considering participating with live accounts and no longer with a demo account. A few months ago, I signed up with a company called IQ Options, but really never involved real money and practiced only with a demo account.

Thanks for your comment. I am glad to see that you liked the post. However, I don’t recommend sing IQ Option to trade since they are a very shady trading firm. You could check out my  Review of IQ Option for all the details.

this is a great and amazing article. i sincerely your effort creating time  to write on such an informative article which has taught me a lot more on what is options assignment and avoiding it. i just started trading but had no ideas on this as a beginner. i find this article very helpful because it has given me more understanding on options trading and knowing the techniques and how to manage the risks. thanks for sharing this amazing article

You are very welcome

Hello, the first thing that i noticed when i opened this page is the beauty of the website. i am sure you have put much effort into creating this article and the details are really clear here. after watching the video break down, i fully understood the entire process on how to avoid options assignment.

Thank you so much for the positive feedback!

I would love to create a website like yours as the design used is really nice, simple and brings about clarity of the write ups, but then you wrote a brilliant article on how to avoid options assignment. great video here. it was  confusing at first. i will suggest another video be added to help some people like me.

Thanks for the feedback. I recommend checking out my  options trading beginner course . In it, I cover all the basics that weren’t explained here.

Thanks for your very helpful article. I am contemplating selling a call that would cover half my shares on company X. How can ensure that the assignment process selects the shares that I bought at a higher price, so as to maximize capital losses?

Hi Luis, When you are assigned, you just automatically buy/sell shares of the underlying at the strike price. This means your overall portfolio is adjusted by these 100 shares. The exact shares and your entry price are irrelevant. If you have 50 shares of X and your short call is assigned, you will sell 100 shares of X at the strike price. After this, your position would be -50 shares of X which would be equivalent to being short 50 shares of X. I hope this helps.

Louis, I entered a CALL butterfly spread at $100 below where I intended, just 2 days before expiration date. I intended to speculate on a big earning announcement jump the next day. It was a debit of 1.25. Also, when I realized my mistake, I tried to close it for anything at all. The Mark fluctuated between 40 and 70, but I could not get it to close. So now I am assigned to sell 200 share at 70 dollars below the market price of the stock. I am having a heart attack. I do not have the 200 shares to deliver, so it seems I have to buy them at the market, and sell them for $70 less, for a loss of $14,000.

What other options are open to me? Can my trading firm force a close with a friendly market maker and make it as if it happened on Friday? I am willing to pay a friendly market maker several hundred dollars to make this trade. Is that an option? Other options the trading firm can do for me that would cost me less than $14,000?

Hi Paul, Thanks for your comment. From the limited information provided, it is hard to say what is actually going on. If you bought a call butterfly spread, your max loss should be limited to the premium you paid to open the position. An assignment shouldn’t have a huge impact on your overall P&L. I highly recommend contacting your broker and explaining your situation to them since they have all the information required to evaluate what’s actually going on. But if the loss is real, there is no way for you to make a deal with a market maker to limit or undo potential losses. I hope this helps.

What happens with ITM long call option that typically gets automatically exercised at expiration, if the owner of the call option doesn’t have the cash/margin to cover the stock purchase?

He would receive a margin call

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Options Assignment: Navigating the Rights and Obligations

By Tyler Corvin

Ever been blindsided by an unexpected traffic ticket in the mail? 

You knew driving came with its set of potential consequences, yet you took to the road regardless. Suddenly, you’re left with a tangible obligation to pay. This unforeseen shift, where what was once a mere possibility becomes an immediate reality, captures the spirit of options assignment within the vast realm of options trading.

Diving into the details, option assignment serves as the bridge between the abstract realm of rights and the concrete world of duties in this field. It’s that unassuming piece in the machinery that can, without warning, change the entire game – often carrying notable financial repercussions. In a domain where every move has implications, truly grasping option assignment is foundational, ensuring not just survival but genuine success.

Join us in this comprehensive exploration of option assignment, arming traders of all experience levels with the knowledge to sail these intricate seas with assuredness and accuracy.

What you’ll learn

What is Options Assignment?

How options assignment works, identifying option assignment , examples of option assignment, managing and mitigating assignment risks, what option assignment means for individual traders.

• Conclusion 

Dive into the realm of options trading and you’ll find a tapestry of processes and potential. “Options assignment” is one pivotal cog in this intricate machine. To a newcomer, this term might seem a tad daunting. But a step-by-step walk-through can demystify its core.

In its simplest form, options assignment means carrying out the rights specified in an option contract. Holding an option allows a trader the choice to buy or sell a particular asset, but there’s no compulsion. The moment they opt to use this right, that’s when options assignment kicks in.

Think of it this way: You’ve got a ticket (option) to a show (buy or sell an asset). You decide if and when to attend. When you make the move, that transition is the options assignment.

There are two main types of option assignments:

• Call Option Assignment : Triggered when a call option holder exercises their right. The seller of the option then steps into the spotlight, bound to sell the asset at the agreed-upon price.
• Put Option Assignment : Conversely, if a put option holder steps forward, the seller of the put takes the stage. Their role? To buy the asset at the specified rate.

To truly grasp options assignment, one must understand the dance between rights and obligations in options trading.

When a trader buys an option, they’re essentially reserving a right, a possible move. On the other hand, selling an option translates to accepting a duty if the option’s holder chooses to play their card.

Rights with Call Options: Buying a call option grants you a special privilege. You can procure the underlying asset at a set price before the option expires. If you choose to exercise this right, the one who sold you the call gets assigned. Their task? Handing over the asset at that set price.

Obligations with Put Options: Securing a put option empowers you to sell the underlying at a pre-decided rate. Should you exercise this, the put’s seller steps up, committed to buying the asset at the given rate.

Several factors steer the course of options assignment, including intrinsic value, looming expiration dates, and current market vibes. To stay ahead of these influences, many traders utilize option trade alerts for timely insights. And remember, while many options might find buyers, not all see execution. Hence, not every seller will get assigned. For traders, understanding this rhythm is vital, shaping many strategies in options trading. 

In the multifaceted world of options trading, discerning option assignment straddles the line between art and science. While no technique guarantees surefire results, several pointers and signals can wave a flag, hinting at an impending assignment.

In-the-Money Options : A robust sign of a looming assignment is the option’s stance relative to its strike price. “In-the-money” refers to an option’s moneyness , and plays a pivotal role in the behavior of option holders. Deeply in-the-money (ITM) options amplify the odds of assignment. An ITM call option, where the market price of the asset towers above the strike price, encourages the holder to exercise and swiftly offload the asset on the market. Conversely, an ITM put option, where the market price trails significantly behind the strike price, incentivizes the holder to scoop up the asset in the market and then exercise the option to vend it at the loftier strike price.

Expiration’s Shadow: The ticking clock of an expiring option raises the assignment stakes, especially if it remains ITM. Many traders make their move just before the eleventh hour to capitalize on their gains.

Dividend Dates in Focus: Call options inching toward expiry ahead of a dividend date, especially if they’re ITM, stand at an elevated assignment crosshair. Option aficionados might play their call options to pocket the dividend, which they’d bag if they possess the core shares.

Extrinsic Value’s Decline : A diminishing time or extrinsic value of an option elevates its exercise odds. When intrinsic value dominates an option’s worth, a holder might be inclined to cash in on this value.

Volume & Open Interest Dynamics : A sudden surge in trading or a dip in open interest can be telltale signs. Understanding volume’s role is crucial as such fluctuations might hint at traders either hopping in or out, suggesting possible exercises and assignments. 

Navigating the Post-Assignment Terrain

Grasping the ripple effects of option assignment is vital, highlighting the immediate responsibilities and potential paths for both the buyer and seller.

For the Option Seller:

• Call Option Assignment : For a trader who’s sold a call option, assignment means they’re on the hook to hand over the underlying shares at the strike price. If they’re short on shares, a market purchase is in order—potentially at a loss if market prices overshoot the strike.
• Put Option Assignment: Assignment on a peddled put option necessitates the trader to buy the shares at the strike price . If this price overshadows the market rate, losses loom.

For the Option Buyer:

• Call Option Play : Exercising a call lets the buyer snap up shares at the strike price. They can either nestle with them or trade them off.
• Put Option Play: Exercising a put gives the buyer the reins to sell their shares at the strike price. This play often pays off when the market rate is dwarfed by the strike, ensuring a tidy profit on the dispensed shares.

Post-assignment, all involved must be on their toes, knowing what triggers margin calls , especially if caught off-guard by the assignment. Tax implications may also hover, influenced by the trade’s nature and the tenure of the position.

Being savvy about these subtleties and gearing up for possible turns of events can drastically refine one’s journey through the options trading maze. 

Call Option Assignment Scenario

Imagine an investor purchases an Nvidia ( NVDA ) call option at a strike price of $435, hoping that the price of the stock will ascend after finding out that they may be forced to move out of some countries . The option is set to expire in a month. Soon after, not only did NVDA rebound from the news, but they reported very strong quarterly earnings, propelling the stock to $455.

Spotting the favorable trend, the investor opts to wield their right to purchase the stock at the agreed strike price of $435, despite its $455 market value. This initiates the option assignment.

The other investor, having sold the option, must now part with their NVDA shares at $435 apiece. If they’re short on stocks, they’d have to fetch them at the going rate of $455 and let them go at a deficit. The first investor, however, stands at a crossroads: retain the shares in hopes of further gains or swiftly trade them at $455, reaping a neat sum. 

Put Option Assignment Scenario

Let’s visualize an investor who speculates a dip in the share price of V.F. Corporation ( VFC ) after seeing news about an activist investor causing shares to jump almost 14% in a day . To hedge their bets, they secures a put option from another investor at a strike price of $18.50, set to lapse in a month.

Fast forward a week, let’s say VFC divulges lackluster quarterly figures, causing the stock to dive to $10. The first investor, seizing the moment, employs their put option, electing to sell their shares at the $18.50 strike price.

When the assignment bell tolls, the other investor finds himself bound to buy the shares from the first investor at the agreed $18.50, a rate that overshadows the current $10 market value. The first investor thus sidesteps the market slump, securing a favorable sale. The other investor, however, absorbs a loss, acquiring stocks at a premium to their market worth.

The realm of options trading is akin to navigating a dynamic river, demanding a sharp comprehension of the risks that lie beneath its surface. A predominant risk that traders often encounter is assignment risk. When one assumes the role of an option seller, they inherit the duty to honor the contract if the buyer opts to exercise. Grasping the gravity of this can make the difference, underscoring the necessity of adept risk management.

A savvy approach to temper assignment risk is by keeping a vigilant eye on the extrinsic value of options. Generally, options rich in extrinsic value tend to resist early assignment. This resistance emerges as the extrinsic value dwindles when the option dives deeper in-the-money, thereby tempting the holder to exercise.

Furthermore, economic currents, ranging from niche corporate updates to sweeping market tides, can be triggers for option assignments. Staying attuned to these economic ripples equips traders with the vision needed to either tweak or maintain their positions. For example, traders may opt to sidestep selling options that are deeply in-the-money, given their higher susceptibility to assignments due to their shrinking extrinsic value.

Incorporating spread tactics, like vertical spreads  or iron condors, furnishes an added shield. These strategies can dampen the risk of assignment since one part of the spread frequently balances the risk of its counterpart. Should the specter of a short option assignment hover, traders might contemplate ‘rolling out’ their stance. This move entails repurchasing the short option and subsequently selling another, possibly at a varied strike rate or a more distant expiry.

Yet, despite these protective layers, it remains pivotal for traders to brace for possible assignments. Maintaining ample liquidity, be it in capital or necessary shares, can avert unfavorable scenarios like hasty liquidations or stiff margin charges. Engaging regularly with brokers can also shed light, occasionally offering a heads-up on looming assignments.

In conclusion, the bedrock of risk management in options trading is rooted in perpetual learning. As traders hone their craft, their adeptness at forecasting and navigating assignment risks sharpens.

In the intricate world of options trading, option assignments aren’t just nuanced details; they’re pivotal moments with deep-seated implications for individual traders and the health of their portfolios. Beyond the immediate financial aftermath, assignments can reshape trading plans, risk dynamics, and the overarching path of an investor’s journey.

At its core, option assignments can transform a trader’s asset landscape. Consider a trader who’s short on a call option. If they’re assigned, they might be compelled to supply the underlying stock. This can result in a rapid stock outflow from their portfolio or, if they don’t possess the stock, birth a short stock stance. On the flip side, a trader short on a put option who faces assignment may find themselves buying the stock at the strike price, thereby dipping into their cash reserves.

These immediate shifts can generate broader portfolio ripples. An unexpected gain or shedding of stocks can jostle a trader’s asset distribution, veering it off their envisioned path. If, for instance, a trader had charted a particular stock-to-cash distribution or a meticulous diversification blueprint, an option assignment might throw a spanner in the works.

Additionally, assignments can serve as a real-world litmus test for a trader’s risk-handling prowess . A surprise assignment might spark margin calls for those not sufficiently fortified with capital. It stands as a poignant nudge about the essence of ensuring liquidity and safeguarding against the unpredictable whims of the market.

Strategically speaking, recurrent assignments might signal it’s time for traders to recalibrate. Are the options they’re offloading too submerged in-the-money? Have they factored in pivotal market shifts that might heighten early exercise odds? Such reflective moments can pave the way for refining and elevating trading methods. 

In the multifaceted world of options trading, option assignment stands out as both a potential boon and a challenge. Far from being a simple checkbox in the process, its ramifications can mold the contours of a trader’s portfolio and steer long-term tactics. The importance of comprehending and adeptly managing option assignment resonates, whether you’re dipping your toes into options for the first time or weaving through intricate trades with seasoned expertise. 

Furthermore, mastering options trading is about integrating its myriad concepts into a cohesive playbook. Whether it’s differentiating trading strategies like the iron condor from the iron butterfly strategy or delving deep into the nuances of option assignments, each component enriches the narrative of a trader’s odyssey. As markets shift and new hurdles arise, a solid grasp of foundational principles remains an invaluable asset. In this perpetual dance of learning and evolution, may your trading maneuvers always be well-informed, proactive, and adept. 

Understanding Options Assignment: FAQs

What factors influence the likelihood of an option being assigned.

Several factors come into play, including the option’s intrinsic value , the time remaining until expiration, and upcoming dividend announcements. Options that are deep in the money or nearing their expiration date are more likely to be assigned.

Are Some Option Styles More Prone to Assignment than Others?

Absolutely. When considering different option styles , it’s essential to note that American-style options can be exercised at any point before their expiration, which means they face a higher risk of early assignment. In contrast, European-style options can only be exercised at expiration.

How Do Current Market Trends Impact Assignment Risk?

Factors like market volatility, notable price shifts, and external economic happenings can amplify the chances of an option being assigned. For example, an option might be assigned before a company’s ex-dividend date if the expected dividend outweighs the weakening of theta decay .

Can Traders Reverse or Counter the Effects of an Option Assignment?

Once an option has been assigned, it’s set in stone. However, traders can maneuver within the market to balance out the implications of the assignment, such as procuring or selling the underlying asset.

Are There Any Fees Tied to Option Assignments?

Indeed, brokers usually impose a fee for both assignments and exercises. The specific fee can differ depending on the broker, making it essential for traders to understand their brokerage’s charging scheme.

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What Is an Option Assignment?

Definition and Examples of Assignment

How does assignment work, what it means for individual investors.

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An option assignment represents the seller of an option’s obligation to fulfill the terms of the contract by either selling or purchasing the underlying security at the exercise price. Let’s explain what that means in more detail.

Key Takeaways

• An assignment represents the seller of an option’s obligation to fulfill the terms of the contract by either selling or purchasing the underlying security at the exercise price. 
• If you sell an option and get assigned, you have to fulfill the transaction outlined in the option.
• You can only get assigned if you sell options, not if you buy them.
• Assignment is relatively rare, with only 7% of options ultimately getting assigned.

An assignment represents the seller of an option’s obligation to fulfill the terms of the contract by either selling or purchasing the underlying security at the exercise price. Let’s explain what that means in more detail.

When you sell an option to someone, you’re selling them the right to make you engage in a future transaction. For example, if you sell someone a put option , you’re promising to buy a stock at a set price any time between when the transaction happens and the expiration date of the option.

If the holder of the option doesn’t do anything with the option by the expiration date, the option expires. However, if they decide that they want to go through with the transaction, they will exercise the option. 

If the holder of an option chooses to exercise it, the seller will receive a notification, called an assignment, letting them know that the option holder is exercising their right to complete the transaction. The seller is legally obligated to fulfill the terms of the options contract.

For example, if you sell a call option on XYZ with a strike price of $40 and the buyer chooses to exercise the option, you’ll be assigned the obligation to fulfill that contract. You’ll have to buy 100 shares of XYZ at whatever the market price is, or take the shares from your own portfolio and sell them to the option holder for $40 each.

Options traders only have to worry about assignment if they sell options contracts. Those who buy options don’t have to worry about assignment because in this case, they have the power to exercise a contract, or choose not to.

The options market is huge, in that options are traded on large exchanges and you likely do not know who you’re buying contracts from or selling them to. It’s not like you sell an option to someone you know and they send you an email if they choose to exercise the contract, rather it is an organized process.

In the U.S., the Options Clearing Corporation (OCC), which is considered the options industry clearinghouse, helps to facilitate the exchange of options contracts. It guarantees a fair process of option assignments, ensuring that the obligations in the contract are fulfilled.

When an investor chooses to exercise a contract, the OCC randomly assigns the obligation to someone who sold the option being exercised. For example, if 100 people sold XYZ calls with a strike of $40, and one of those options gets exercised, the OCC will randomly assign that obligation to one of the 100 sellers.

In general, assignments are uncommon. About 7% of options get exercised, with the remaining 93% expiring. Assignment also tends to grow more common as the expiration date nears.

If you are assigned the obligation to fulfill an options contract you sold, it means you have to accept the related loss and fulfill the contract. Usually, your broker will handle the transaction on your behalf automatically.

If you’re an individual investor, you only have to worry about assignment if you’re involved in selling options. Even then, assignments aren't incredibly common. Less than 7% of options get assigned and they tend to get assigned as the option’s expiration date gets closer.

Having an option assigned does mean that you are forced to lock in a loss on an option, which can hurt. However, if you’re truly worried about assignment, you can plan to close your position at some point before the expiration date or use options strategies that don’t involve selling options that could get exercised.

The Options Industry Council. " Options Assignment FAQ: How Can I Tell When I Will Be Assigned? " Accessed Oct. 18, 2021.

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The Risks of Options Assignment

Any trader holding a short option position should understand the risks of early assignment. An early assignment occurs when a trader is forced to buy or sell stock when the short option is exercised by the long option holder. Understanding how assignment works can help a trader take steps to reduce their potential losses.

Understanding the basics of assignment

An option gives the owner the right but not the obligation to buy or sell stock at a set price. An assignment forces the short options seller to take action. Here are the main actions that can result from an assignment notice:

• Short call assignment: The option seller must sell shares of the underlying stock at the strike price.
• Short put assignment: The option seller must buy shares of the underlying stock at the strike price.

For traders with long options positions, it's possible to choose to exercise the option, buying or selling according to the contract before it expires. With a long call exercise, shares of the underlying stock are bought at the strike price while a long put exercise results in selling shares of the underlying stock at the strike price.

When a trader might get assigned

There are two components to the price of an option: intrinsic 1 and extrinsic 2  value. In the case of exercising an in-the-money 3 (ITM) long call, a trader would buy the stock at the strike price, which is lower than its prevailing price. In the case of a long put that isn't being used as a hedge for a long stock position, the trader shorts the stock for a price higher than its prevailing price. A trader only captures an ITM option's intrinsic value if they sell the stock (after exercising a long call) or buy the stock (after exercising a long put) immediately upon exercise.

Without taking these actions, a trader takes on the risks associated with holding a long or short stock position. The question of whether a short option might be assigned depends on if there's a perceived benefit to a trader exercising a long option that another trader has short. One way to attempt to gauge if an option could be potentially assigned is to consider the associated dividend. An options seller might be more likely to get assigned on a short call for an upcoming ex-dividend if its time value is less than the dividend. It's more likely to get assigned holding a short put if the time value has mostly decayed or if the put is deep ITM and close to expiration with a wide bid/ask spread on the stock.

It's possible to view this information on the Trade page of the thinkorswim ® trading platform. Review past dividends, the price of the short call, and the price of the put at the call's strike price. While past performance cannot be relied upon to continue, this information can help a trader determine whether assignment is more or less likely.

Reducing the risk associated with assignment

If a trader has a covered call that's ITM and it's assigned, the trader will deliver the long stock out of their account to cover the assignment.

A trader with a call vertical spread 4 where both options are ITM and the ex-dividend date is approaching may want to exercise the long option component before the ex-dividend date to have long stock to deliver against the potential assignment of the short call. The trader could also close the ITM call vertical spread before the ex-dividend date. It might be cheaper to pay the fees to close the trade.

Another scenario is a call vertical spread where the ITM option is short and the out-of-the-money (OTM) option is long. In this case, the trader may consider closing the position or rolling it to a further expiration before the ex-dividend date. This move can possibly help the trader avoid having short stock on the ex-dividend date and being liable for the dividend.

Depending on the situation, a trader long an ITM call might decide it's better to close the trade ahead of the ex-dividend date. On the ex-dividend date, the price of the stock drops by the amount of the dividend. The drop in the stock price offsets what a trader would've earned on the dividend and there would still be fees on top of the price of the put.

Assess the risk

When an option is converted to stock through exercise or assignment, the position's risk profile changes. This change could increase the margin requirements, or subject a trader to a margin call, 5 or both. This can happen at or before expiration during early assignment. The exercise of a long option position can be more likely to trigger a margin call since naked short option trades typically carry substantial margin requirements.

Even with early exercise, a trader can still be assigned on a short option any time prior to the option's expiration.

1  The intrinsic value of an options contract is determined based on whether it's in the money if it were to be exercised immediately. It is a measure of the strike price as compared to the underlying security's market price. For a call option, the strike price should be lower than the underlying's market price to have intrinsic value. For a put option the strike price should be higher than underlying's market price to have intrinsic value.

2  The extrinsic value of an options contract is determined by factors other than the price of the underlying security, such as the dividend rate of the underlying, time remaining on the contract, and the volatility of the underlying. Sometimes it's referred to as the time value or premium value.

3  Describes an option with intrinsic value (not just time value). A call option is in the money (ITM) if the underlying asset's price is above the strike price. A put option is ITM if the underlying asset's price is below the strike price. For calls, it's any strike lower than the price of the underlying asset. For puts, it's any strike that's higher.

4  The simultaneous purchase of one call option and sale of another call option at a different strike price, in the same underlying, in the same expiration month.

5  A margin call is issued when the account value drops below the maintenance requirements on a security or securities due to a drop in the market value of a security or when buying power is exceeded. Margin calls may be met by depositing funds, selling stock, or depositing securities. A broker may forcibly liquidate all or part of the account without prior notice, regardless of intent to satisfy a margin call, in the interests of both parties.

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• Random Assignment in Experiments | Introduction & Examples

Random Assignment in Experiments | Introduction & Examples

Published on 6 May 2022 by Pritha Bhandari . Revised on 13 February 2023.

In experimental research, random assignment is a way of placing participants from your sample into different treatment groups using randomisation.

With simple random assignment, every member of the sample has a known or equal chance of being placed in a control group or an experimental group. Studies that use simple random assignment are also called completely randomised designs .

Random assignment is a key part of experimental design . It helps you ensure that all groups are comparable at the start of a study: any differences between them are due to random factors.

Table of contents

Why does random assignment matter, random sampling vs random assignment, how do you use random assignment, when is random assignment not used, frequently asked questions about random assignment.

Random assignment is an important part of control in experimental research, because it helps strengthen the internal validity of an experiment.

In experiments, researchers manipulate an independent variable to assess its effect on a dependent variable, while controlling for other variables. To do so, they often use different levels of an independent variable for different groups of participants.

This is called a between-groups or independent measures design.

You use three groups of participants that are each given a different level of the independent variable:

• A control group that’s given a placebo (no dosage)
• An experimental group that’s given a low dosage
• A second experimental group that’s given a high dosage

Random assignment to helps you make sure that the treatment groups don’t differ in systematic or biased ways at the start of the experiment.

If you don’t use random assignment, you may not be able to rule out alternative explanations for your results.

• Participants recruited from pubs are placed in the control group
• Participants recruited from local community centres are placed in the low-dosage experimental group
• Participants recruited from gyms are placed in the high-dosage group

With this type of assignment, it’s hard to tell whether the participant characteristics are the same across all groups at the start of the study. Gym users may tend to engage in more healthy behaviours than people who frequent pubs or community centres, and this would introduce a healthy user bias in your study.

Although random assignment helps even out baseline differences between groups, it doesn’t always make them completely equivalent. There may still be extraneous variables that differ between groups, and there will always be some group differences that arise from chance.

Most of the time, the random variation between groups is low, and, therefore, it’s acceptable for further analysis. This is especially true when you have a large sample. In general, you should always use random assignment in experiments when it is ethically possible and makes sense for your study topic.

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Random sampling and random assignment are both important concepts in research, but it’s important to understand the difference between them.

Random sampling (also called probability sampling or random selection) is a way of selecting members of a population to be included in your study. In contrast, random assignment is a way of sorting the sample participants into control and experimental groups.

While random sampling is used in many types of studies, random assignment is only used in between-subjects experimental designs.

Some studies use both random sampling and random assignment, while others use only one or the other.

Random sampling enhances the external validity or generalisability of your results, because it helps to ensure that your sample is unbiased and representative of the whole population. This allows you to make stronger statistical inferences .

You use a simple random sample to collect data. Because you have access to the whole population (all employees), you can assign all 8,000 employees a number and use a random number generator to select 300 employees. These 300 employees are your full sample.

Random assignment enhances the internal validity of the study, because it ensures that there are no systematic differences between the participants in each group. This helps you conclude that the outcomes can be attributed to the independent variable .

• A control group that receives no intervention
• An experimental group that has a remote team-building intervention every week for a month

You use random assignment to place participants into the control or experimental group. To do so, you take your list of participants and assign each participant a number. Again, you use a random number generator to place each participant in one of the two groups.

To use simple random assignment, you start by giving every member of the sample a unique number. Then, you can use computer programs or manual methods to randomly assign each participant to a group.

• Random number generator: Use a computer program to generate random numbers from the list for each group.
• Lottery method: Place all numbers individually into a hat or a bucket, and draw numbers at random for each group.
• Flip a coin: When you only have two groups, for each number on the list, flip a coin to decide if they’ll be in the control or the experimental group.
• Use a dice: When you have three groups, for each number on the list, roll a die to decide which of the groups they will be in. For example, assume that rolling 1 or 2 lands them in a control group; 3 or 4 in an experimental group; and 5 or 6 in a second control or experimental group.

This type of random assignment is the most powerful method of placing participants in conditions, because each individual has an equal chance of being placed in any one of your treatment groups.

Random assignment in block designs

In more complicated experimental designs, random assignment is only used after participants are grouped into blocks based on some characteristic (e.g., test score or demographic variable). These groupings mean that you need a larger sample to achieve high statistical power .

For example, a randomised block design involves placing participants into blocks based on a shared characteristic (e.g., college students vs graduates), and then using random assignment within each block to assign participants to every treatment condition. This helps you assess whether the characteristic affects the outcomes of your treatment.

In an experimental matched design , you use blocking and then match up individual participants from each block based on specific characteristics. Within each matched pair or group, you randomly assign each participant to one of the conditions in the experiment and compare their outcomes.

Sometimes, it’s not relevant or ethical to use simple random assignment, so groups are assigned in a different way.

When comparing different groups

Sometimes, differences between participants are the main focus of a study, for example, when comparing children and adults or people with and without health conditions. Participants are not randomly assigned to different groups, but instead assigned based on their characteristics.

In this type of study, the characteristic of interest (e.g., gender) is an independent variable, and the groups differ based on the different levels (e.g., men, women). All participants are tested the same way, and then their group-level outcomes are compared.

When it’s not ethically permissible

When studying unhealthy or dangerous behaviours, it’s not possible to use random assignment. For example, if you’re studying heavy drinkers and social drinkers, it’s unethical to randomly assign participants to one of the two groups and ask them to drink large amounts of alcohol for your experiment.

When you can’t assign participants to groups, you can also conduct a quasi-experimental study . In a quasi-experiment, you study the outcomes of pre-existing groups who receive treatments that you may not have any control over (e.g., heavy drinkers and social drinkers).

These groups aren’t randomly assigned, but may be considered comparable when some other variables (e.g., age or socioeconomic status) are controlled for.

In experimental research, random assignment is a way of placing participants from your sample into different groups using randomisation. With this method, every member of the sample has a known or equal chance of being placed in a control group or an experimental group.

Random selection, or random sampling , is a way of selecting members of a population for your study’s sample.

In contrast, random assignment is a way of sorting the sample into control and experimental groups.

Random sampling enhances the external validity or generalisability of your results, while random assignment improves the internal validity of your study.

Random assignment is used in experiments with a between-groups or independent measures design. In this research design, there’s usually a control group and one or more experimental groups. Random assignment helps ensure that the groups are comparable.

In general, you should always use random assignment in this type of experimental design when it is ethically possible and makes sense for your study topic.

To implement random assignment , assign a unique number to every member of your study’s sample .

Then, you can use a random number generator or a lottery method to randomly assign each number to a control or experimental group. You can also do so manually, by flipping a coin or rolling a die to randomly assign participants to groups.

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Random assignments and outside options

• Original Paper
• Published: 29 March 2021
• Volume 57 , pages 557–566, ( 2021 )

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• Caterina Calsamiglia 1 , 2 ,
• Francisco Martínez-Mora 3 , 4 &
• Antonio Miralles 5 , 6  

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Most environments where assignment mechanisms (possibly random) are used are such that participants have outside options. For instance private schools and private housing are options that participants in a public choice or public housing assignment problems may have. We postulate that, in cardinal mechanisms, chances inside the assignment process could favor agents with better outside options. By imposing a robustness to outside options condition, we conclude that, on the universal domain of cardinal preferences, any mechanism must be (interim) ordinal.

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Ordinal Bayesian incentive compatibility in random assignment model

More on random utility models with bounded ambiguity, a general impossibility theorem on pareto efficiency and bayesian incentive compatibility.

On a different topic, a similar effect is also noticed in Arnosti and Randolf ( 2021 ).

The lack of enough supply of public slots in this example could just be offset by the existence of other public schools of very low quality that everyone would like to avoid (e.g. ghetto schools.)

Another example. Consider a student who is talented enough for a scholarship at the school of arts. Yet she would prefer to attend the best public school in the area. Given that she has an extra outside option available, she could better bear the risks of applying for the most popular school than a not so talented student. Differences in talent jointly with selective schools may also generate disruptions in the assignment of public slots. Any other discriminatory criterion, given maybe by other socioeconomics (religion, etnicity etc.) that give some agents higher access to reservation objects, may trigger a similar normative requirement.

We thank a referee who pointed out this observation.

Seemingly, the reader could wonder why the mechanism should not be robust to any modification of the valuation for the outside option, in any quantity and direction. (We thank a referee for this observation.) Such a more stringent condition would lead to identical conclusions as in this paper. We consider our no-regret condition as stated in our paper as a minimal condition regarding outside options that leads to ordinality.

We thank a referee and the associate editor for pointing this simplification of the model.

In what follows, \(1_{|S|+1}\) is a vector of ones with dimension \(|S|+1\) .

In an extreme case in which the final assignment could be enforced and no adaptation were allowed, our results (Lemma 1 and Theorem 1 ) would still follow.

Notice that two elements ahead of o are not enough. Notice, along the lines of the proof of Lemma 1, that Q ( v ) must be invariant to \(v^{o}\) as long as ordinal preferences are maintained and no matter how low the valuation of objects worse than o is. Fix any two \(v,v^{\prime }\) consistent with those ordinal preferences. There are affine transformations \(\hat{v},\hat{v}^{\prime }\) of the former vectors such that \(\hat{v}\) and \(\hat{v}^{\prime }\) differ only, if any, on the valuation for the outside option. Hence these types receive equal probability bundles.

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Caterina Calsamiglia

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University of Leicester School of Business, Leicester, UK

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Previous title: “Cardinal Assignment Mechanisms: Money Matters More than It Should.” Caterina Calsamiglia acknowledges financial support by the ERC Starting Grant 638893. Francisco Martínez-Mora gratefully acknowledges funding support from Fundación La Caixa and Fundación Caja Navarra under contract LCF/PR/PR13/51080004. Antonio Miralles thanks the Ortygia Business School and acknowledges financial support from the Spanish Government R&D programs SEV-2015-0563 and ECO2017-83534P, and to the Catalan Government (SGR2017 0711.) We are also grateful to Jordi Massó, Clemens Puppe and to the audiences at both the 13th Matching in Practice workshop and the 2017 UECE Lisbon Meetings, for their comments and help.

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Calsamiglia, C., Martínez-Mora, F. & Miralles, A. Random assignments and outside options. Soc Choice Welf 57 , 557–566 (2021). https://doi.org/10.1007/s00355-021-01328-9

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Received : 11 September 2019

Accepted : 15 March 2021

Published : 29 March 2021

Issue Date : October 2021

DOI : https://doi.org/10.1007/s00355-021-01328-9

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