Assignment: Definition, How It Works, and Examples

What is an assignment?

An assignment is the transfer of rights, property, or contractual obligations from one party to another. In finance, the term commonly refers to:

• The transfer of ownership or contractual rights (for example, deeds, trademarks, leases, or the right to collect payment).
• The specific event in options trading when an option holder exercises their right and a writer (seller) is assigned the corresponding obligation.

Key takeaways

• Assignment transfers rights or obligations from one party to another.
• Assignments appear in many contexts: wages, mortgages, leases, trademarks, and contracts.
• In options, assignment occurs when an option is exercised and a writer is obligated to fulfill the contract (sell or buy the underlying).

How assignments work (general)

A valid assignment typically requires:
* Parties with legal capacity.
* Consideration (something of value, unless the transfer is a gift where legal form may differ).
* Consent (unless a court enforces assignment such as wage garnishment).
* A legal and transferable subject matter.

Common examples

Wage assignment
* A wage assignment (or wage garnishment) requires an employer to withhold a portion of an employee’s pay to satisfy obligations such as unpaid child support, taxes, or court-ordered debts.
* Courts or administrative agencies generally authorize these assignments when other collection efforts have failed.

Mortgage assignment
* A mortgage assignment transfers a lender’s interest in a mortgage to another party, often when mortgages are sold to third-party investors or other lenders.
* The assignment document directs the borrower where to send future payments and may record changes in servicing or ownership.

Lease assignment
* A tenant can assign a lease to a new tenant, transferring lease responsibilities (rent, maintenance) to the assignee. The original tenant may be released from obligations if the landlord agrees.
* A landlord can assign rent streams to creditors (assignment of rents) so rental income flows directly to a lender if the landlord defaults.

Options assignment (how it works)

In options markets, assignment refers to the process that follows when an option holder exercises:

• When a holder exercises a call, they buy the underlying shares at the strike price; when they exercise a put, they sell the underlying shares at the strike price.
• The clearinghouse (e.g., Options Clearing Corporation in the U.S.) matches the exercise notice to a short position among option writers. Assignment to short holders is typically determined by a random or rotating process handled by clearing members.
• The assigned writer (seller) must fulfill the contract:
• Call writer: obliged to sell the underlying shares at the strike price. If the writer does not own the shares, assignment creates a short stock position.
• Put writer: obliged to buy the underlying shares at the strike price, resulting in a long stock position acquired at that price.

Options assignment example
* If a trader holds 100 call option contracts on ABC (each contract = 100 shares) with a $10 strike and exercises while ABC trades at $30, exercising results in purchasing 10,000 shares at $10.
* A writer on the opposite side will be assigned and must deliver the 10,000 shares at the $10 strike. If that writer did not own the shares, they become short the stock until they buy shares or otherwise close the position.

Practical considerations

• Option writers cannot choose whether they will be assigned; they can only manage assignment risk by closing positions before exercise, hedging, or owning the underlying when selling covered calls.
• Assignment can occur any time before expiration for American-style options; European-style options can only be exercised at expiration.
• In non-trading contexts (mortgages, leases), assignments should be documented and, where applicable, recorded to ensure clear title and payment instructions.

Summary

Assignment is a broad legal and financial concept that reassigns rights or obligations from one party to another. In everyday finance it appears in wages, mortgages, leases, and intellectual property transfers. In options markets, assignment is the mechanism that enforces exercised contracts, imposing binding obligations on option writers. Understanding the mechanics and legal requirements of assignment helps parties manage risk and ensure proper transfer of rights.