What Is to Assign?
To assign in the short options and futures contract markets means to match counterparties. The process is random and carried out by clearinghouses and brokerages. Once the assignment is made, the underlying securities or commodities are delivered to the holders of maturing or exercised contracts.
- To assign in the options market is to randomly match buyers and sellers 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, to assign is to transfer rights or property from one party to another.
Broadly speaking, to assign is to transfer the 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 that is required to deliver on an options contract. In the wider business world, it may also refer to the transfer of a trademark, banknotes, or other property rights. Mortgage assignments involve transferring mortgage deeds, while lease assignments transfer lease contracts.
Understanding an 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 Assignment 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.
Assigns 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 that the asset move in the opposite direction.