Cash settled at expiration, was expecting the underlying stock

E

earth_imperator

I had a vertical Put spread of ticker CLNN for strike 2.50 (short) and 1.00 (long).
Yesterday at expiration the ShortPut expired in my favor and I've earned the full credit.
I was thinking the OCC (or the broker) will give me the underlying stock,
but today in my account I see nothing of CLNN anymore. Ie. they seem to have cash-settled it.
I was thinking cash-settlement is done only with index options.
Can an expert comment on this situation? Thx.
I just want to be sure about what to expect the next time in such a similar situation.
I even prefer such cash-settlement over getting the stock. So, I'm not complaining at all :D
 
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Stock closed near 3 so your put was OTM.
You would only receive the stock if your short put was above 3.
 
BKR88 said:
Stock closed @ 3.
2.50 is below 3. Every put below 3 is worthless at expiration.
You're only ITM with short puts ABOVE 3.
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All the time I was thinking I'm making profit with this spread position, and you now tell me this is not true??? :D
I have to check it again :)

Come on, I'm in profit if the spot is > strike. Since the spot was around 3 and strike 2.50 then it made a profit.
I think you should re-check your view...
 
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earth_imperator said:
All the time I was thinking I'm making profit with this spread position, and you now tell me this is not true??? :D
I have to check it again :)
More...

You DID make money.
Example:
You sold the 2.5 put for .20
You bought the 1.0 for .05
Your profit is .15
You received a credit of .15 when you entered the spread and at expiration you didn't have to do anything as they both expired worthless so you kept the .15

***Use reverse thinking when trading puts compared to calls. :-) OTM calls are above the current price so OTM puts are below the current price.
 
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BKR88 said:
You DID make money.
Example:
You sold the 2.5 put for .20
You bought the 1.0 for .05
Your profit is .15
You received a credit of .15 when you entered the spread and at expiration you didn't have to do anything as they both expired worthless so you kept the .15
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Ok, thanks. I'll chew a while on this to "get" it :)
Oh man, these options: I'm working for years now on options and still have such stupid problems :)

Update: now I finally grasped it! Yes, indeed you are of course right!
I was just looking whether the position was shown in green or red in my broker account :)
It was green all the time... :)

Update2: for those who want to study that spread trade: https://optioncreator.com/stzk4av
My qty differs, but that's irrelevant for the study.
 
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earth_imperator said:
I had a vertical Put spread of ticker CLNN for strike 2.50 (short) and 1.00 (long).
Yesterday at expiration the ShortPut expired in my favor and I've earned the full credit.
I was thinking the OCC (or the broker) will give me the underlying stock,
but today in my account I see nothing of CLNN anymore. Ie. they seem to have cash-settled it.
I was thinking cash-settlement is done only with index options.
Can an expert comment on this situation? Thx.
I just want to be sure about what to expect the next time in such a similar situation.
I even prefer such cash-settlement over getting the stock. So, I'm not complaining at all :D
More...

There is no cash settlement. If your spread expired OTM and you earned the full credit, you won't get the stock. You will only get the stock if your short option expired ITM meaning that the underlying's market price is lower than the strike of your short option so you would've bought the underlying at a price higher than its market price and if you want to turn around and sell it in the market, you would've incurred an immediate loss. And if the underlying price is even lower than your long put and if you have auto-exercise on, you would've immediately sold the stock at the strike of your long put so you would lose an amount equal to the difference between the strike of the short and the long (1.00 - 2.50) X number of the contracts X 100.

You have no basic understanding of how options work. You need to learn about the basics of options before you dab further in options trading otherwise you will lose big. Just some friendly advise. https://www.investopedia.com/terms/o/option.asp
 
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And one more free piece of advice to you: Don't be fooled by the easy "income earning" capability of shorting vertical spread. They are riskier than you think. You may like the small but seemingly steady income that you are earning but when it goes wrong, the loss can take out everything that you have earned and then some. Consider yourself warned.
 
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