Exercise is when an option buyer uses the right in the contract: to buy the underlying with a call or sell it with a put. Assignment is the other side of that, when an option seller is told to fulfil the obligation.
American vs European style
American-style options can be exercised at any time before expiry. European-style options can only be exercised at expiry. Index options on most exchanges are European style. Check the contract specification for whatever you trade.
When early assignment happens
- A short call that is deep ITM just before the stock pays a dividend.
- A short option that is deep ITM with very little time value left.
- In practice most option holders sell the option instead of exercising it, because selling also captures any remaining time value.
Protecting yourself as a seller
If you sell options, know the settlement rules, keep enough margin, and close positions that are deep ITM near expiry unless you are ready to take or deliver the underlying.
This article is for education only and is not financial advice. Options involve risk and are not suitable for every investor.