unwelcome assignment(redirected from Unwelcome Assignments)
A situation in which an option writer (that is, the one who sells the option and has no control over its exercise) is required to fulfill the terms of the contract when doing so results in a loss or is otherwise detrimental to his/her investment strategy. For example, one may write a call with an exercise price of $30. If the price of the underlying asset is $40, the exercise of the contract is an unwelcome assignment because the writer must sell the underlying asset for $10 below its market price. One can avoid an unwelcome assignment by taking an offsetting position.
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The assignment of an option to a writer when the writer does not yet wish to fulfill the terms of the contract. For example, for tax reasons, an option writer may want assignment to occur near the expiration. Unwelcome assignment is a possibility for calls when the underlying asset sells at or above the strike price, and it is a possibility for puts when the underlying asset sells at or below the strike price. Unwelcome assignment can be avoided by purchasing an offsetting contract and closing out a position. See also assign.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.