Help me understand limit on closing a bull spread credit

[BMK]

Max Profit/Max Loss figures in risk profile for spreads are illusions. They don’t exist. The likely hood of your fly pinning to the exact penny is highly probable,

Don't you mean highly improbable?

And the OP may not know what you mean when you say "your fly pinning to the exact penny."

If they are still learning how a credit spread behaves, they may not know what a fly is, and they may not know what you mean by pinning.

With that being said, I agree that it is not common to actually realize the max profit or loss on a butterfly.

But I've done vertical spreads--both credit and debit spreads--that I have held through expiration. If both legs are far enough in the money, I sometimes just let the position dissolve on its own through assignment and exercise. And that will yield the max profit or loss. And it closes the position without any commissions (at most brokers).

BMK

 

[.sigma]

Don't you mean highly improbable?

And the OP may not know what you mean when you say "your fly pinning to the exact penny."

If they are still learning how a credit spread behaves, they may not know what a fly is, and they may not know what you mean by pinning.

With that being said, I agree that it is not common to actually realize the max profit or loss on a butterfly.

But I've done vertical spreads--both credit and debit spreads--that I have held through expiration. If both legs are far enough in the money, I sometimes just let the position dissolve on its own through assignment and exercise. And that will yield the max profit or loss. And it closes the position without any commissions (at most brokers).

BMK

yes improbable, thanks.

well just cause (assuming) they don’t know what I mean doesn’t mean I can’t talk about it. Plus, hopefully the thread starter reads about my fly pin comment and sparks his mind to find out what it means.

A fly is just a verticalized vertical. It’s two vertical spreads conjoined/sharing the middle body strike. I think bringing up a butterfly in a vertical thread is ever-more important as you’ll understand verticals better once you understand butterflies, or vice versa.

And yes, I didn’t say spreads can’t reach the max terminal payout. I’m just saying as a spread trader, you’ll want to manage a percentage of that R:R, giving the trader a sense when to exit efficiently.

 

[.sigma]

Don't you mean highly improbable?

And the OP may not know what you mean when you say "your fly pinning to the exact penny."

If they are still learning how a credit spread behaves, they may not know what a fly is, and they may not know what you mean by pinning.

With that being said, I agree that it is not common to actually realize the max profit or loss on a butterfly.

But I've done vertical spreads--both credit and debit spreads--that I have held through expiration. If both legs are far enough in the money, I sometimes just let the position dissolve on its own through assignment and exercise. And that will yield the max profit or loss. And it closes the position without any commissions (at most brokers).

BMK

by the way, Rest In Peace bro

 

[Wantboost]

keep watching how the spread moves through space and time.

if you sold a bull put vertical you received a credit.

$XYZ @ $100

90/95 spread is quoted @ 0.98

You sold the 95 put, bought the 90 put, thus receiving a credit. Spread is $5 wide (5-0.98=$402 risk). If you’re familiar with the differences of vertical debit/credit/bull/bear combo’s I’ll spare the explanation. But if you’re receiving a credit to open, you’ll pay a debit to close. You can click “close position” and your broker platform will route your order to the limit price (fill or not). If you want to close out only one leg.. the 95 put you’ll buy back, or the 90 put you’d sell back.

of course receiving $98 and risking $402 isn’t my cup of tea, but it’s good for the neophyte to trade a bunch of different spreads and see how they act and react.

And remember to remember: Max Profit/Max Loss figures in risk profile for spreads are illusions. They don’t exist. The likely hood of your fly pinning to the exact penny is highly probable, so when trading spreads always secure a percentage of the total profit/loss and manage your trade when your goal or heuristic method primes you to do so.

So what's your strategy since put credit spreads is not your cup of tea

 

[Wantboost]

by the way, Rest In Peace bro

Why you rest in peace?

 

[BMK]

by the way, Rest In Peace bro

Why you rest in peace?

He was kidding around. The image associated with my username here on this board was, up until this morning, a photo of Bernie Madoff. Madoff died today in prison at the age of 82. I changed my photo because I thought it seemed like it was in poor taste now that he is dead.

 

[.sigma]

So what's your strategy since put credit spreads is not your cup of tea

I almost always buy the corresponding debit spread over the credit. The only time I’ll opp for the credit is if vol is compensating (high IV).

I trade mostly debit verticals (long/short), plain vanilla calls/puts (ATM/OTM), and butterfly spreads (ATM/OTM).

 

[olivemckenzie]

To know spreads better, you can keep an eye on how spread moves through space and time.

 

[.sigma]

To know spreads better, you can keep an eye on how spread moves through space and time.

DEEDLE-DEEDLE QUEEP

 

[Wantboost]

I almost always buy the corresponding debit spread over the credit. The only time I’ll opp for the credit is if vol is compensating (high IV).

I trade mostly debit verticals (long/short), plain vanilla calls/puts (ATM/OTM), and butterfly spreads (ATM/OTM).

For the puts and calls r u buying or selling