What is an exercise notice?
In one line: An exercise notice is the instruction an option holder sends through their broker to use the option, which leads to a seller somewhere being assigned.
How it works
When an option holder wants to use the option, they tell their broker. That instruction is the exercise notice. Here's the path it takes:
- The holder asks their broker to exercise.
- The broker passes the notice to the Options Clearing Corporation (OCC), which stands behind every US listed option.
- The OCC picks, at random, a broker with clients who are short that option.
- That broker picks one of its short clients, at random or first-in, first-out. Brokers tell you which method they use.
- You get an assignment notice.
At expiry, most of this happens on its own. Options in the money by $0.01 or more are exercised automatically, unless the holder says not to. Holders have until a cutoff on expiry evening to send or cancel instructions, and brokers often set an earlier one.
An example (hypothetical)
You sold a $45 put on XYZ for $1.00 (an illustration, not a trade idea). Two days before expiry, XYZ is at $38. Someone holding that put exercises it early, on Wednesday.
| When | What you see |
|---|---|
| Wednesday, after the close | The holder's notice reaches the OCC; you're picked |
| Thursday, before the open | An assignment notice from your broker |
| Thursday | 100 XYZ shares in your account; $4,500 of cash gone |
| XYZ still at $38 | −$600 so far (−$700 on shares, +$100 premium) |
You don't get a warning or a choice. The notice tells you what has already happened. A math example, not a promise.
Why it matters for sellers
The random step means anyone short an option can be picked, even when many others are short the same one. It's not personal, and it doesn't depend on when you sold.
The timing means you find out after the fact, usually overnight or before the next open. In the wheel strategy, check your account each morning of expiry week and around ex-dividend dates. Notices can come by email, by app alert or just as a changed position. Our options assignment guide shows what that looks like in your account.
Questions
Can I refuse an exercise notice?
No. Once you're assigned, the shares or the cash move. You can only avoid it by closing the option before it happens.
When do assignment notices usually arrive?
Usually overnight, before the next market open. For expiry Friday, many brokers show it on Saturday or Monday morning.
Why was I assigned when others weren't?
The OCC and your broker pick at random, or by a stated method. Being picked is chance, not a penalty.
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