What can a trader do to mitigate risks associated with assignment risk?

Utilizing spreads and hedging strategies is an effective way for a trader to mitigate risks associated with assignment risk. Spreads involve simultaneously buying and selling options on the same underlying asset to limit potential losses while still allowing for some gain. This approach can reduce exposure to assignment risk by ensuring that the trader is not overly reliant on one position or outcome.

Hedging strategies typically involve taking an opposing position to balance potential losses. For instance, if a trader holds a short position in options, they might buy another option to offset any potential assignment risk. This dynamic allows traders to manage their risk profile more effectively, making adjustments as market conditions change.

The other strategies mentioned do not effectively address assignment risk. Increasing exposure by buying more contracts could exacerbate risk rather than mitigate it, while ignoring expiring contracts ignores the reality of potential assignment and its implications. Favoring only options with a long time until expiration may reduce the likelihood of immediate assignment but does not eliminate the risk associated with options trading overall. Therefore, utilizing spreads and hedging strategies is the most comprehensive approach to managing assignment risk.