Hey traders,
Earlier this week I showed you why I love selling puts on strong stocks — and even how Warren Buffett uses the same playbook.
So today, I want to zoom out and talk about what happens on the back end of those trades: options assignment.
A lot of folks think that if your option finishes in the money on Friday, that’s it. You’re assigned, case closed.
Not quite.
The Mechanics of Assignment
Here’s the deal:
- Even if a contract closes in the money at the bell, you aren’t “automatically” stuck right away.
- The CBOE has until 11:59 pm Saturday night to finalize assignments.
- That means you could get a notice early Sunday morning that your shares were called away (in the case of a covered call), or that you were assigned stock (in the case of a naked put).
In other words, Friday’s closing price isn’t always the final word.
How I Handle It
If I don’t want to risk assignment, I usually just buy the option back before expiration.
Most of the time, when the trade has gone my way, that means buying it back for a penny or two before expiration — just closing out my commitment.
Sometimes that’s the smart move, if, for example, you sell a put for 30¢ and the stock zooms upward, making the put plummet in value.
On the other hand, if the trade hasn’t gone my way, and the option is getting close to the money or even finishing in the money, I might have to buy it back for more than I sold it just to get out of the trade.
Usually I won’t do that. But I mention it because it’s important to know that it’s something you can do.
At the end of the day, it’s about simple risk management. If I want the trade off my plate, I take it off.
Why It Matters
If you’re selling puts… or running the wheel strategy… understanding assignment is part of the game.
It’s not a reason to avoid these trades — it’s just part of knowing how the system works.
Options give us a ton of flexibility, but only if you understand the mechanics. Otherwise you’re flying blind.
The Takeaway
Selling options is one of my bread-and-butter strategies. But you’ve got to know what happens at expiration so you don’t wake up Sunday surprised.
So remember: close it if you don’t want the shares, or let it ride if you’re happy owning them. That’s the beauty of it — you’re in control.
Enjoy the long Labor Day weekend, everyone. Rest up, recharge, and I’ll see you back in the markets next week.
Trade well,
Jack Carter
P.S. A list of stocks that has gone up every August for 10 years straight? Get them here and you can use them every year!
