Short options

    What is early assignment risk and how do I avoid it when selling deep ITM covered calls?

    By Easy Money Scanner · Educational reference · Not investment advice

    The short answer

    Early assignment risk on deep ITM covered calls rises sharply near ex-dividend dates, since call holders may exercise early to capture the dividend; sellers can reduce this risk by avoiding deep ITM strikes with little remaining extrinsic value around those dates.

    How it works

    Assignment becomes more likely when an option's extrinsic value falls below the dividend amount, making early exercise profitable for the call holder who wants to collect the dividend as a new shareholder.

    An example

    A trader holding a deep ITM covered call with only 10 cents of extrinsic value before a 50-cent dividend may see shares called away the day before the ex-dividend date.

    Risk & limitations

    OCC disclosures note assignment can happen on any U.S. business day prior to expiration for American-style options, and sellers cannot control or predict exact timing.

    Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.

    Sources & further reading

    Easy Money Scanner provides informational tools using machine learning. This is not investment advice. Trading involves substantial risk of loss. Read full disclaimer →