In options trading, what does the term "assignment" refer to?

In options trading, the term "assignment" specifically refers to the process by which an option seller, also known as a writer, is required to fulfill the obligations of the options contract when the option buyer exercises the option. For instance, if an option buyer chooses to exercise a call option, the seller is obligated to sell the underlying asset at the agreed-upon strike price. This is a fundamental concept in options trading, as it highlights the responsibilities that come with writing options.

The concept of assignment emphasizes the seller's duty, which is a critical component of the options market. When an option is assigned, it signifies that the contract is being executed, and the seller must prepare to deliver the underlying asset or cover the contract terms accordingly. Understanding this obligation is key for those involved in options trading, as it can have significant implications on their trading strategy and financial exposure.