Assignment is when the buyer of an option exercises their right to buy or sell the underlying asset, and the seller is assigned to fulfill the contract.
For example, let’s say you sell a call option to someone who wants the right to buy 100 shares of Company XYZ at a strike price of $60. If the price of the stock rises to $70 and the buyer of the call option decides to exercise their right to buy the shares at the lower $60 strike price, you, as the seller of the call option, will be assigned to sell the 100 shares to the buyer at the $60 strike price. This means you will need to deliver the shares to the buyer and receive $6,000 ($60 strike price x 100 shares) in return. If you don’t own the shares, you’ll have to buy them at the current market price and sell them at the lower strike price, which could result in a loss. On the other hand, if the buyer of the call option chooses not to exercise their right to buy the shares, the option will expire, and you’ll keep the premium (price paid for the option) that you received when you sold the call option.