To Assign or Not to Assign - that is the worrying question !

How can you figure out if you are going to be assigned on your short options positions, particularly if their is a dividend due?

The main reason that this situation occurs is that a market maker would typically be on the other side of your short position. Thus this long call would then be hedged with short stock. Synthetically the short stock and the long call equate to a long put. So if the market maker needs to maintain this risk position, they can assign your short call which closes out their short stock and if they then buy a long put to reinstate their original risk position at a cost that is less than the dividend amount, they will make a profit by assigning you.

Assignment only effects short calls because these are where your obligation to buy rests. Thus in order to work out if you will be assigned on your short calls, (A), simply look at the equivalent Put price (B), and if it is less than the expected dividend, (C), then there is a high probability that you will be assigned.

In our DIA example, the dividend, (C) is$0.0942 cents whilst the Put value,(B),  is $3.20 so the cost far outweighs the benefit derived by assigning your short calls and claiming the dividend.

In addition your trade will need to be close to expiration as well - trades that have multiple months to run will usually have such high remaining extrinsic or time value that assignment will not make sense.

Cheers