What Is an Assign?
An assign in the short options and futures contract markets is the matching of counterparties by clearinghouses and brokerages. The process is random. Once the assign is made, the underlying securities or commodities are delivered to the holders of maturing or exercised contracts.
- An assign in the options market is a random matching of buyer and seller for maturing or exercised options contracts.
- The assigned party is required to deliver the assets underlying the options to the contract holder at the date established by the contract.
- More generally, an assign is a transfer of rights or property from one party to another.
Broadly speaking, to assign is to transfer rights or property from one person or business to another. An assignment can be any transfer of any sort of rights. In the financial markets, the term assign generally relates to the party who is required to deliver on an options contract. In the wider business world, it may also refer to the transfer of a trademark, banknotes, and other property rights. Mortgage assignments involve transferring mortgage deeds, while lease assigns transfer lease contracts.
Understanding the Assign
Not all contracts in options will be exercised or tendered. The ones that are exercised or tendered must be settled with the delivery of the underlying security. These are randomly assigned to brokerages that, in turn, randomly select which of their clients will be assigned.
During an assignment of options or futures contracts, the clearinghouse assigns an option writer who will be the required buyer or seller of the underlying contract upon its exercise.
The Assign Process
Brokerages and clearinghouses are needed to connect buyers and sellers of options contracts.
The seller and writer of a call option will sell a set number of shares at a set price if the option is exercised. If the option is called, the brokerage assigns a client with a short position, again at random, to deliver the stock to another client with a long position in the same contract. The brokerage will randomly select the counterparty who must deliver the asset when the contract requires it to be delivered.
Assign and Options
An assign generally refers to an option contract. Options offer the right but not the obligation to buy an underlying asset at a specific price. In the U.S. markets, options can be exercised anytime, while options in the European markets are exercised only on the option expiration date. If an option is exercised, the assignment will be made immediately.
When an option is exercised, the option writer, who is the call seller in this case, must fulfill the obligations of the contract. In the example above, the call writer would be obligated to sell a specific number of underlying securities for a specific price.
Options buyers speculate on the future movements of stocks or other assets. Option buyers believe that the underlying asset will move one way, while option sellers, who are called writers, are betting on a move in the opposite direction.