Definition
Exercise is the act of an option holder invoking the contract's rights — buying the underlying at the strike price with a call, or selling it at the strike price with a put. Assignment is the mirror image: the obligation handed to an option writer whose contract has been exercised against them, requiring delivery or receipt of the underlying at the strike.
Every exercise produces an assignment somewhere. The two terms describe the same event from opposite sides of the contract — the holder chooses, and the writer is bound to comply.
Why it matters
How it works
When a holder submits an exercise notice, the brokerage routes it to the clearinghouse, which selects a writer to assign through a random or pro-rata process. The assigned writer must then settle: a call writer delivers shares (or pays cash), a put writer purchases shares. Most equity options exercise into 100 shares per contract.
Holders rarely exercise early because doing so forfeits any remaining time value — selling the option is usually more efficient. Exceptions include capturing a dividend or closing a deep-in-the-money position. Writers should monitor short positions closely as expiration nears, since assignment risk rises sharply for in-the-money contracts.