What Do I Do If I Get Assigned on a Put?

What exactly happened

When you sell a put, you take on the obligation to buy 100 shares per contract at the strike price. If the stock is below the strike at expiration (or earlier), the buyer exercises and you get assigned: in Interactive Brokers you'll see the put disappear and the shares appear, with a cost basis at the strike price.

At MTO, assignment is almost never a surprise: we either seek it out (on companies we want to own) or it's part of the strategy's plan B, as in the MTO Wheel Spread.

Step 1: Calculate your real cost basis

The cost your broker shows is the strike, but your real cost basis is lower: the strike minus all the premiums collected on that position. For example, if you're assigned at $15 and you had collected $2.38 in premium, your average price is $12.62. That number drives every decision that follows.

If you came from a spread (short put + long put), check the long put before it expires: we usually prefer to sell it to collect its value instead of exercising it, and keep the shares at an even lower cost basis.

Step 2: Decide whether you want to keep the shares

• If you still like the company, you keep the shares and start selling covered calls.
• If you don't want to stay exposed, you can sell them. Sometimes that's the right call, even at a small loss.

Step 3: Sell calls… but only above your cost basis

The rule we always follow: sell the call with a strike above our average price. That way, if the call gets assigned, we sell the shares at a profit. We explain it in detail in covered calls on assigned shares.

What if the stock has tanked?

This is the hard case. If the stock is trading well below your cost basis, calls above that price pay hardly any premium, and selling them lower means risking selling at a loss just to scrape together a few bucks. When this has happened to us, what we've done is sit tight: wait for the stock to recover and then sell calls that make sense. It isn't the most exciting approach, but it avoids turning a temporary loss into a real one.

A note on accounting

Selling the put and buying the shares are separate transactions: the premium is a result of the option, and the shares have their own cost. For decision-making, the average price net of premiums is what helps you; for your tax return, each transaction is reported separately.