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My PMCC short call was assigned — now what?

You are short 100 shares you never owned, you still hold a long-dated call, and your broker wants the shares. Nothing is broken. You have four ways out and they do not cost the same.

Options guide · 9-minute read · Updated 2026-10-29

What just happened to your account

A poor man's covered call is a long-dated call (a LEAPS) plus a short nearer-dated call sold against it. The long call stands in for 100 shares. It is not 100 shares, and this is the moment that difference shows up.

Your short call was exercised. You had to deliver 100 shares. You did not have them. So your broker did this:

• Sold 100 shares you do not own, at the short strike. The cash landed in your account.
• Left you short 100 shares. A negative share position, borrowed, with a margin requirement against it.
• Left your long call alone. It is still sitting there with all its time on it.

You are not naked. The long call covers the short stock above its own strike — the pair is locked, and the lock is the thing you now have to unwind. Some brokers exercise the long call for you automatically instead, especially in a small or cash-secured account; if yours did, skip to the first row of the table below, because that is the outcome you got.

Two bills also start running the day you go short the stock: borrow interest, and any dividend that goes ex while you are short — you owe it.

A worked example (hypothetical)

An illustration, not a trade idea, and it is a loss.

Made-up company Harbour Lane Freight trades at $50.

• You buy a 14-month $40 call for $14.00, so −$1,400.
• The $55 calls "pay nothing", so you sell the 30-day $50 call for $2.00, +$200.
• Net debit: $1,200.

Here is the part most people skip. The most this can make is (50 − 40) × 100 − $1,200 = −$200. It was capped at a loss before the stock moved. See choosing the LEAPS strike for why that happens and how to check it in ten seconds.

Three weeks in, strong results push the stock to $62. A $0.50 dividend goes ex tomorrow, so the call holder exercises early to collect it. You are assigned.

Your account now holds:

The long call is worth $24.00 — $22.00 of Intrinsic value plus $2.00 of time value still in it.

Your four ways out, costed

Stock is at $62. Nothing here is a rescue. These are just different prices for the same exit.

The gap between the first row and the third is $200. That is exactly the $2.00 of time value in the long call. Exercising throws it in the bin. Buying the shares on the market sells it instead.

That is the single most useful thing on this page: exercising a long call to cover an assignment is almost always the most expensive exit. The deeper in the money the stock went, the smaller the gap — but it is never in your favour.

Most sellers pick the third row: buy the shares back, sell the long call, be flat, done. It is the wrong choice in one case — when you still want the position. Then take row two, keep the long call, and understand that you now hold a plain directional bet with nothing sold against it.

Why early assignment hits this setup harder

A real Covered call that gets assigned is tidy: your shares leave, the cash arrives, you are flat. A PMCC has no shares, so assignment creates a short stock position, and short stock brings three things a covered call never does.

1. A margin requirement. Short stock needs margin, even though the long call offsets the risk. A small account can get a call for cash it does not have.
2. A dividend you owe. Short on the ex-date means you pay it. That was the whole reason the holder exercised early.
3. Borrow interest, and hard-to-borrow risk. On a thinly traded name the position can be bought in without your say.

Early assignment on a call clusters right before an ex-dividend date when the call has almost no time value left. My guide on early assignment has the signals to watch.

How to not be here next time

• Check the ceiling before you open. Most the trade can make is (short strike − long strike) × 100 − net debit. If that is negative, do not open it.
• Know the ex-dividend dates of the stock for the life of the short call. Avoid holding a deep in-the-money short call through one.
• Roll before it gets deep. A short call with time value left is rarely exercised early. My guide on rolling a PMCC short call covers when a roll helps and when it quietly caps you.
• Ask your broker, in writing, what it does when the short leg of a diagonal is assigned and the long leg is a LEAPS. Some exercise for you. Some leave you short. The answer changes your plan.
• Know your permission level. Multi-leg spreads need a higher options approval than covered calls at most brokers. In Canada, short stock is generally not permitted in a TFSA or an RRSP at all, which means an assignment like this one can force an immediate close — check your broker's current options agreement before you run a PMCC in a registered account.

If this all sounds like a lot of moving parts, that is a fair read. A share-based covered call or the wheel strategy has none of it. The full map of alternatives is in option strategies beyond the wheel.

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