Calendar Spread Question

S

stockoptionist

This is a question that's been on my mind for some time. I would appreciate it if you guys could give me some pointers.

SPY was last traded at 129 on Friday. If I were to do a calendar spread, say, long SPY JUN 129 CALL and short SPY JULY 129 CALL, what should I do if my short contract gets exercised, SPECIFICALLY when I don't have enough equity to deliver the underlying? It seems that brokers such as IB allow you to make this kind of trade even if you don't have enough equity to deliver the underlying in case a contract is exercised.

Thanks again for your tips.
 
Oh, I could just short the underlying to deliver and then buy it back to cover. But doesn't that depend on how much margin I'm allowed to have? If I have only $5000 in my account, I may not be allowed to sell short the underlying, 100 shares of which would require equity in excess of $12900.
 
what u r describing, my friend, is not a "normal" calendar spread, but what is called a "reverse calendar". by selling short the back month , rather than the front month, most brokers would c u as holding a naked short option (because the short position outlives the long one), hence the margin requirements.
 
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