Understanding Early Assignment - FEAR NOT!

The risk of early assignment is a real risk that must be considered when entering into positions involving short options. Early assignment of stock options is generally related to dividends, and short calls that are assigned early are generally assigned on the day before the ex-dividend date. If early assignment of a short call does occur, the obligation to deliver stock can be met either by buying stock in the marketplace or by exercising the long call. The "bear call spread" strategy creates a potential position created at expiration. If the stock price is above the higher strike price, then the short call is assigned and the long call is exercised. The result is that stock is sold at the lower strike price and purchased at the higher one and the result is no stock position.