What Really Happens When Your PMCC Gets Assigned? (The Answer Might Surprise You)

Reader question from Lou G.: "Thanks Andy, I opened this new position just now. Can you please walk me through something I haven't understood too well about the PMCC? What actually happens if we're assigned/exercised on the short calls? Would we have to exercise the LEAPS so we'd have the actual shares to sell/have called away? What are the actual mechanics if the short calls are exercised? I understand we'll try to roll them up and out as the stock price rises and we get closer to the short calls' expiration, but I'd just like to understand what actually happens specifically if they're actually exercised on us. Thank you, Lou G."

Lou, great question, the fact that you just opened the position and you're thinking through the mechanics tells me you're going to do just fine with PMCCs.

Let me walk you through exactly what happens when assignment hits. And here's the part that surprises most traders: no, you don't have to exercise your LEAPS. In fact, exercising is usually the wrong move economically. Let me show you why.

First, The Direct Answer to Your Core Question

You asked if you'd have to exercise the LEAPS to have shares to deliver. Here's the straight answer: No, you don't have to exercise your LEAPS.

And more importantly, you usually shouldn't exercise them.

I know that feels counterintuitive. After all, when you're short a call and it gets exercised, someone's expecting you to deliver 100 shares, right? So it seems logical that you'd convert your LEAPS into shares by exercising it.

But here's what actually happens, and why there's almost always a better path forward.

Let's Remember What We're Actually Trading Here

Think of your PMCC as having two distinct parts working in harmony:

The engine is your deep-in-the-money LEAPS call, usually somewhere between 70 to 85 delta, dated 12 to 24 months out. This is your stock substitute. It moves almost dollar-for-dollar with the underlying, but costs you a fraction of what buying 100 shares would.

The income generator is that shorter-dated call you keep selling against it. Maybe it's 30 to 60 days out, maybe it's weeklies. Either way, you're collecting premium to reduce your basis and generate cash flow.

Here's the critical difference from a traditional covered call: you don't own the actual shares. You own a call option that gives you the right to buy shares. That distinction matters when assignment comes knocking.

When Does Assignment Actually Happen?

Assignment isn't random chaos, even though it can feel that way. There are patterns:

The dividend grab is the big one. If your short call is in-the-money and there's barely any time value left, maybe five or ten cents, and an ex-dividend date is approaching? Someone's going to exercise that call to capture the dividend. Bank on it.

Expiration Friday is the other obvious trigger. Any call that finishes in-the-money gets auto-exercised unless the holder explicitly tells their broker not to. If the stock closes at $50.01 and your short call is at the $50 strike, you're getting assigned.

The wild card is that assignment instructions get randomly distributed across all short positions at that strike. You might dodge it, but you probably won't. Better to plan as if you're getting tagged than to hope you're not.

Okay, So You Wake Up Assigned. Now What?

Here's what actually happened overnight while you were sleeping:

Your broker created a short stock position in your account. You're now short 100 shares per contract at whatever strike your call was.

Now, this is the key mechanic you asked about, Lou: you don't physically "have shares called away" like you would in a traditional covered call. You never owned the shares to begin with, you owned a call option. So instead of shares leaving your account, your broker creates a short stock position representing your obligation to deliver shares.

Think of it like an IOU that appeared in your account. The cash hasn't moved yet, you just owe shares.

And here's the key insight: you don't have to do anything with your LEAPS at all.

The Primary Path: Simply Buy Back the Short Stock (Keep Your LEAPS)

This is the most straightforward and usually the best approach. You got assigned and now you're short 100 shares per contract? Just buy those shares back in the market, "buy to cover", and you're done.

Your LEAPS sits there untouched. The assignment is handled. Your PMCC structure remains intact, and you can turn around and sell another short call against your LEAPS whenever you're ready.

Why this is usually best:

• Your LEAPS retains all its time value, nothing wasted

• You maintain your position structure and can immediately re-establish a new short call

• You're treating the assignment as what it is: a separate stock transaction that doesn't require touching your underlying LEAPS position

• Maximum flexibility going forward

The consideration: You need the capital to buy the shares. If you were assigned at a $50 strike, you'll need $5,000 per contract to buy those 100 shares back. But once you cover the short stock, you're squared up and can continue running your PMCC strategy.

Alternative Path 1: Exercise Your LEAPS to Cover

This is what many traders assume they have to do. You exercise your long call, which converts it into 100 shares at your strike price. Those shares automatically cover the short stock position, and both sides close out.

When this makes sense:

• Your LEAPS has essentially no time value left (deep in-the-money, near expiration)

• You don't have the capital to buy shares outright

• You want to close the entire position anyway

The downside: Every penny of extrinsic value in your LEAPS? Gone. You're voluntarily destroying time value by exercising. If your LEAPS has any meaningful time premium left, this is leaving money on the table.

Alternative Path 2: Sell the LEAPS and Buy Back the Short Stock

Instead of exercising, you sell your LEAPS to another trader for its full market value (capturing all that time value as cash), then use those proceeds to buy shares and cover the short position.

When this makes sense:

• You want to capture maximum value from your LEAPS' time premium

• You're ready to close the entire PMCC position

The downside: You're dismantling your PMCC. The LEAPS is gone, so if you want to run another PMCC, you'll need to re-establish everything from scratch.

Let's Make This Concrete With Real Numbers

Nothing clarifies like an example. Say the stock is trading at $50.

You're holding a January 2027 $35 LEAPS call, and your November $50 short call just got assigned the night before ex-dividend. That short call had maybe five cents of time value left—basically nothing.

Your LEAPS is trading around $17.50. The intrinsic value is $15 (that's the $50 stock price minus your $35 strike), so there's about $2.50 of time value baked in.

Now let's see how each approach plays out:

The primary move - Buy shares to cover, keep LEAPS: You buy 100 shares at $50 to cover your short stock position. Cost: $5,000. Your LEAPS stays put with all $2.50 of time value intact. You can now sell another short call against your LEAPS tomorrow if you want. Your PMCC continues.

Alternative - Exercise the LEAPS: You convert your LEAPS into 100 shares at $35, which automatically covers the short stock. Everything closes out. Clean and simple, but you just kissed that $2.50 of extrinsic value goodbye. That's $250 per contract you left on the table.

Alternative - Sell the LEAPS and buy shares: You collect that full $17.50 for your LEAPS, then buy 100 shares at $50 to cover. You kept the $2.50 time value, but now your entire PMCC is dismantled. If you want to run another one, you're starting from scratch.

The Smart Money Move: Don't Get Assigned in the First Place

You mentioned in your question that you understand we'll try to roll them up and out as the stock price rises, and you're exactly right. That's your first line of defense. But let me give you the specific triggers that tell you when to roll, because that's where most traders miss the warning signs.

Look, assignment happens. But you can dodge most of it with some basic hygiene:

Respect ex-dividend dates like they're radioactive. If your short call is in-the-money with pennies of extrinsic value and ex-div is tomorrow? Roll that position today. Up and out. Don't wait to see what happens.

Watch the extrinsic value drain. When your short call is down to a dime or less of time value, someone's going to exercise it. Either roll it or be prepared for assignment.

Pin risk is real. When expiration Friday arrives and the stock is dancing around your strike, anything can happen. Close early for pocket change if you want certainty, or roll earlier in the week.

Start with sensible deltas. Selling calls at 15 to 30 delta against a 70 to 85 delta LEAPS gives you room to manage. You're not constantly fighting assignment pressure.

Your Assignment Decision Tree (Save This)

When assignment happens, here's your thought process:

Do you have the capital to buy back the shares? If yes, this is usually your best move. Buy to cover the short stock, keep your LEAPS intact with all its time value, and continue your PMCC strategy. You can sell another short call whenever you're ready.

Is your LEAPS near expiration with minimal time value left? If the extrinsic value is basically zero (deep in-the-money, close to expiry), then exercising the LEAPS becomes a reasonable alternative. You're not giving up much time value, and it closes everything out cleanly.

Do you want to close the entire PMCC position? If you're done with this trade, you can either exercise the LEAPS (if time value is minimal) or sell the LEAPS and buy back the shares (if you want to capture that time value as cash).

Tax or account considerations? Different paths create different realized gains/losses and may have different tax treatments. The buy-to-cover path gives you the most flexibility to manage these considerations. (Talk to your tax pro about your specific situation.)

Rolling: The Skill That Prevents All This Drama

Here's the truth: traders who get good at rolling rarely get assigned.

Roll earlier than feels comfortable. When the stock starts climbing toward your short strike and extrinsic is compressing, roll up and out. Get another 1-4 weeks and widen the distance. Don't wait until you're at-the-money with two days left.

Trade for credits, not pride. If you can roll for a net credit and buy yourself breathing room, take it. If the credit is slim, ask yourself whether closing the short and re-entering later at better implied volatility makes more sense.

The ex-div rule: If you're in-the-money and extrinsic is less than the dividend, assignment is basically guaranteed. Roll before the close the day before ex-div, or accept that you're getting tagged and have your playbook ready.

A Few Edge Cases You Should Know About

Partial assignment can happen. You sold three calls, but only one gets assigned? Treat each as its own mini-situation. Flatten the short stock and re-evaluate your position.

Pin risk near expiration means you might get assigned even if the stock settles a few pennies above your strike. If avoiding any chance of assignment matters to you, just close the position for cheap before the bell.

Halts and after-hours gaps can leave you unable to execute your usual fix immediately. This is why position sizing matters. An overnight short stock position shouldn't be big enough to ruin your month.

Quick FAQ, Because I Know You're Wondering

Do I have to do anything with my LEAPS if I get assigned? Nope. The simplest and usually best approach is to just buy back the short stock position in the market. Your LEAPS stays untouched, maintains all its time value, and you can immediately sell another short call to continue your PMCC.

Can I get assigned before expiration? Absolutely. Especially around ex-dividend dates or when extrinsic value has evaporated.

What if I want to keep running PMCCs after assignment? If you buy to cover the short stock and keep your LEAPS, you're already set up. Just sell another short call when you're ready. If you exercised or sold your LEAPS, you'll need to re-establish a fresh LEAPS position first.

When would I exercise my LEAPS instead of just buying back the shares? Mainly when the LEAPS has essentially zero time value left (deep in-the-money and close to expiration), or if you don't have the capital to buy the shares outright and you want to close the position.

Your One-Page Assignment Checklist

Keep this somewhere visible:

Before trouble starts:

• Check upcoming ex-dividend dates

• Monitor short call extrinsic value (red flag if ≤ $0.10)

• If both boxes checked, roll up/out now or close

If you get assigned:

• Primary move: Buy to cover the short stock, keep your LEAPS intact

• Alternative if LEAPS has minimal time value: Exercise LEAPS to cover

• Alternative if closing entire position: Sell LEAPS and buy back short stock to capture time value

• Rebuild: If you kept your LEAPS, you can sell another short call immediately to continue the PMCC

Want to master the complete PMCC strategy? If you want to learn how I approach PMCCs, from position entry and delta selection to rolling techniques and risk management, check out Wealth Without Shares, the ultimate resource for LEAPS and PMCC strategies.

The Bottom Line

Here's what I want you to take away from this, Lou—and let me answer your specific questions directly:

"What actually happens if we're assigned on the short calls?" Your broker creates a short stock position in your account at the strike price of your short call. You owe 100 shares per contract. No shares leave your account because you never owned them—you're now holding an obligation to deliver.

"Would we have to exercise the LEAPS so we'd have the actual shares to sell/have called away?" No, you don't have to exercise the LEAPS. That's just one option—and usually not the best one. The economically superior path is typically to sell your LEAPS (capturing its remaining time value) and buy shares to cover the short stock position. This keeps more money in your pocket.

"What are the actual mechanics if the short calls are exercised?" You wake up with a short stock position. The cleanest path: simply buy back those shares in the market and keep your LEAPS untouched. Your PMCC stays intact, and you can sell another short call whenever you want. Alternatively, if your LEAPS has no time value left, you can exercise it to cover the short stock. Or if you're closing the position entirely, you can sell the LEAPS and buy back the shares to capture maximum value.

And yes, you're right about rolling. As the stock price rises toward your short strike and expiration approaches, you'll roll up and out to maintain distance and collect credits. This prevents most assignments from ever happening. The traders who manage their positions actively, watching extrinsic value, respecting ex-div dates, rolling before things get tight, rarely deal with assignment at all.

Assignment isn't some catastrophic event. It's just plumbing.

The PMCC's advantage is capital efficiency and repeatable income generation, not outsmarting assignment. If you manage extrinsic value, respect ex-dividend dates, and roll with intention, assignment becomes rare and manageable. And when it does happen, the sell-LEAPS-and-buy-shares path typically keeps the most value in your pocket.

The traders who stress about assignment are usually the ones who aren't watching their positions. The ones who sleep well? They're rolling before things get tight, checking ex-div dates every Sunday night, and treating assignment as just another part of the process.

That's the difference between fearing assignment and managing it.

Probabilities over predicitons,

Andy Crowder

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