Being assigned on a short option before expiration, which converts the leg into stock and can leave the rest of a spread unhedged.
Assignment is the seller's side of early-exercise. You do not choose it and you get no warning. It arrives overnight as a share position and a cash movement.
The real danger is not the assignment itself but what it does to a spread. Assignment on the short leg of a vertical-spread leaves you holding stock plus a long option — a position with completely different risk, capital requirements and overnight exposure than the defined-risk trade you put on.
Example: you hold the XYZ $50/$55 call spread and are assigned on the $50 call. You are now short 100 shares at $50 (a $5,000 credit) and long a $55 call. Your maximum loss is still capped, but your buying-power-reduction jumps and you carry a gap risk you did not plan for.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.
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