Hypothetical Credit Spread Question

[aphexcoil]

Let's say I sold 10 contracts of OCT PUT $10 on ORCL for $1.00 and purchased 10 contracts of OCT PUT $7.50 on ORCL for $.05.

At expiration, the price for ORCL is $10.00. If my account does not have the money necessary to purchase 1,000 shares of ORCL at $10.00, how is this resolved with my broker (IB)?

 

[birddog]

aphie,

firstly the margin req for this position would be 20% of the position plus the premium less the out of the money amount. So 10 puts would be 1000 shares x 10 x 20% = 2,000 plus the net premium which would be $950. So you would need say 3k available in order to put on this position.

As far as the stock being put, if it closes exactly at 10 it is not automatically put to you but let us assume that it is. You would get a fed call for 50% of the position (5k) and then would get a liquidation when selling it if you could not meet the margin requirement.