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For example, when initiating a put spread, a trader might purchase a put option at a certain strike price while simultaneously selling another put option at a lower strike price. This type of strategy has a limited risk profile, but when market conditions shift, traders might find themselves at risk of being assigned significant shares.

The Scenario: A Hypothetical Trade Example

In a hypothetical example, consider a trader who opens put spreads, investing a relatively small amount of capital, such as $58 for 29 spreads. Initially, this appears to be a low-risk position. However, should the market move against this trader, and all short legs of the options get assigned, they may be obligated to purchase a large volume of shares at the strike price.