EARLY ASSIGNMENT
Plain English
If you've sold an American-style option, the buyer can exercise it at any time — not just at expiration. This is called early assignment. It most commonly happens with deep ITM options, especially around ex-dividend dates.
Going deeper
American-style options can be exercised at any time before expiration. Early assignment occurs when the option buyer exercises before expiration. It's most common in two scenarios: (1) Deep ITM short calls just before the stock goes ex-dividend — the call buyer exercises to capture the dividend. (2) Deep ITM short puts when the extrinsic value is near zero — the put buyer exercises to free up capital. Early assignment isn't bad per se, but it can be surprising if you're not prepared. It can change your position unexpectedly, particularly in multi-leg strategies.
Examples
Dividend Assignment
You sold a $45 Call on a stock trading at $52. The stock goes ex-dividend tomorrow with a $1.00 dividend. The call has only $0.10 of extrinsic value. The call buyer exercises to capture the $1.00 dividend. You're now short 100 shares at $45.
Spread Leg Risk
You have a Bear Call Spread: short $100 Call, long $105 Call. The stock is at $108 and the short $100 Call is assigned early. You're now short 100 shares at $100 — but you still have the long $105 Call as protection. You need to manage the position Monday morning.