One area where I have noticed substantial confusion is the difference between the term 'exercise' and the term 'assignment'. To be honest, over the years I have often, incorrectly, used these two words interchangeably.
Whenever I seek clarity on the meaning of a particular investing-related concept, I first go to a wonderful site that is basically a dictionary of investing words and terminology -- investopedia.com.
Before reading the sentences about the terms 'exercise' and 'assignment' from Investopedia presented below, here is a basic background insight to help you distinguish the primary difference between these two terms:
- Exercising an option is done by the option buyer.
- Assignment occurs to the option seller (as a direct result of the option buyer's exercise).
Explanations from Investopedia