Bull Call Spread - Maximum profit

[moolah]

If you held the spread to expiration and both calls expired in the money, you would realize the max amount of 5 for you spread. Since you paid 2.55 for it, you would make 2.45. ($245).

The risk of holding through expiration is your short side finishes just out of the money and you come in long stock when your long calls are exercised. Even if both are in the money, there is a chance your short calls are not exercised and you come in long stock.

Some brokers will sell out your position on expiration day if you don't have the money to cover the exercise.

This is why I would suggest selling to close your spread before the end of expiration day.

So even if both the long and short side are ITM many days before expiration, and i chose to close my position, i can never get my max profit?

 

[FSU]

So even if both the long and short side are ITM many days before expiration, and i chose to close my position, i can never get my max profit?

That's correct. Consider the person who would be buying it from you. If they paid your maximum profit of 5 for your call spread days before expiration, they would make no money, no matter what happens to the stock and if stock moved against them in those few days, they would lose all their money.

 

[moolah]

So in a nutshell, in order to get maximum profit, the following conditions have to be satisfied;

1. Both Long and short sside must be ITM
2. Must hold until expiry date / day. For this point, i am guessing one must close their position before 4 pm on the expiry date / day to avoid being auto-exercise by the broker.

Thank you!