Lesson 3 of 5

Getting Assigned -- Now What?

Phase 2: You Got Assigned

Assignment is not a failure. I need you to internalize that. Assignment means the stock dropped below your strike and your broker bought you 100 shares. You already collected premium, so your real cost basis is lower than the strike. This is the planned transition from Phase 1 to Phase 2. Take a breath. You chose this stock because you wanted to own it. Now you do.

How Assignment Works Mechanically

Assignment happens automatically at expiration if your put is ITM by at least $0.01. Your broker deducts the cash (strike x 100) and deposits 100 shares in your account. You'll see them the next trading day. There's nothing you need to do. No button to press, no form to fill out. You just wake up owning shares.

Calculating Your True Cost Basis

Effective Cost Basis

Cost Basis = Strike Price - Total Put Premium Collected

AMD Assignment Example

You sold a $140 put on AMD for $3.20. AMD dropped to $136 at expiration and you were assigned. Your effective cost basis: $140 - $3.20 = $136.80. AMD is at $136, so you're only $0.80 underwater on paper. If you had rolled the put once or twice before getting assigned and collected an extra $1.50, your total basis would be $135.30 -- actually BELOW the current price. That's the power of accumulating premium.

What to Do After Assignment

Do not panic. Seriously. This was part of the plan. You picked this stock because you wanted to own it.
Calculate your real cost basis: strike minus ALL premiums collected (including any puts you rolled before assignment).
Check the situation: Is this a normal dip or did the company just announce terrible news? A 5% pullback is routine. A fraud investigation is not.
If the company is fine, start Phase 3 immediately -- sell a covered call on your 100 shares.
If the stock dropped hard and you're way underwater, be patient. Sell a call at or above your cost basis, even if the premium is small. Don't lock in a loss by selling calls too low.

Avoid the 'Bag-Holder' Trap

The wheel only works on stocks you have genuine conviction in. If the company's fundamentals have broken (terrible earnings, losing market share, management fraud), it's better to take the loss and move on than to stubbornly sell calls hoping to recover. I've seen traders wheel a declining stock for months, collecting $200 in premium while the shares dropped $3,000 in value. Know when to fold.

Some traders continue selling puts after assignment to build a bigger position at even lower prices. This is called 'scaling in' and can work in a gradual decline. But only do this if you have the capital AND the conviction. For most wheel traders starting out, just move to covered calls after the first assignment. Keep it simple.

The short version

•Assignment is a planned event, not a mistake. You're buying at a price you chose, at a cost basis reduced by premium.
•Your real cost basis = strike minus ALL premiums collected. Always know this number.
•After assignment, assess the situation and start selling covered calls. That's Phase 3.
•If the company's story has fundamentally changed, exit. Don't wheel a broken stock.

Quick Check

1/3

You collected $2.10 in total put premium before being assigned at a $50 strike. What is your effective cost basis?

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