DITM spread prices

S

spreadn00b

I was putting together some spreads for a look this morning and got my strikes a little wrong and noticed something strange. The B/A spread for DEC 70/DEC 75 put credit spread is -5.20/-4.80. Isn't 5.00 the maximum risk for this spread at expiration? I'm sure I couldn't get the 5.20 credit, but the 5.00 credit is the mid point. Wouldn't this be a risk free trade?

What's the catch? Would I ever get filled? Is the probability of assignment high?
 
Quote from spreadn00b:
Isn't 5.00 the maximum risk for this spread at expiration? I'm sure I couldn't get the 5.20 credit, but the 5.00 credit is the mid point. Wouldn't this be a risk free trade?
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Maximum loss is $5.00 minus the credit, in this case $4.80 (not $5.20). Loss = $0.20

Quote from spreadn00b:
Is the probability of assignment high?
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100% if they are ITM, so a loss of $0.20 plus commisions is a sure thing. You might be getting the Bid and Ask switched around.
 
No, I wasn't getting them switched around. IB quotes credit spreads as negative.

Quote from forex-forex:

Maximum loss is $5.00 minus the credit, in this case $4.80 (not $5.20). Loss = $0.20

100% if they are ITM, so a loss of $0.20 plus commisions is a sure thing. You might be getting the Bid and Ask switched around.
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Yes, 100% if I let them expire in the money, but in the case of a put credit spread, if the underlying moves higher, I can buy back the spread at a lower cost. If it sinks lower, I can hold until expiration and get $5.00 minus the $5.00 credit = $0?

I guess I'll post a screenshot next time I see this and someone can point out what I'm missing.

Thanks for the reply though, I do appreciate it.

Quote from forex-forex:

Maximum loss is $5.00 minus the credit, in this case $4.80 (not $5.20). Loss = $0.20

100% if they are ITM, so a loss of $0.20 plus commisions is a sure thing. You might be getting the Bid and Ask switched around.
More...
 
OK, you're looking at the quote now and you're correct.

I'll post a screen shot the next time I see it. I have a feeling an MM would never fill the spread @ 5.00. Maybe I'll try sometime for grins.

Quote from forex-forex:

FRE @ $66.41

Sell Dec 75 @ $8.80
Buy Dec 70 @ $4.10

Total Credit $4.70

Also I wouldn't consider 1 strike ITM to be DITM.
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Quote from spreadn00b:

No, I wasn't getting them switched around. IB quotes credit spreads as negative.
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Not always it depends on how you enter the combo order
 
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