Definition: Assignment occurs when the buyer of an option (call or put) decides to exercise their option. The seller of a call option must sell 100 shares per contract at the specified strike price to the buyer. The seller of a put option must buy 100 shares per contract at the specified strike price.
Assignment can technically happen at any time when you are a seller of options (American-style). To put things into perspective, approximately only 7% of options get exercised.
There are situations when you are more likely to get assigned as an option seller:
The calls/puts sold are in-the-money. If an option has intrinsic value, the buyer may want to cash in the intrinsic value. Keep in mind the buyer will likely not do this until expiration nears as the option still has time value.
Expiration is getting closer. With less extrinsic value making up the value of the option each day it gets closer to expiration, the buyer may be willing to exercise the option to gain any intrinsic value.
There is a dividend coming up. The buyer of a call may want to receive a dividend, so they’ll exercise their option to purchase shares.
You may wonder how it is determined who actually gets assigned from the pool of sellers when an option buyer decides to exercise their option. It turns out the process involves randomizing the broker which must fill the obligation and then each broker randomizes the individual account chosen.
As a seller of options, it is recommended to keep an eye on options that are in-the-money that are close to their expiration. At a certain point it is advisable to buy back these options for a loss to avoid assignment fees that may be charged by your broker.