ITM debit spreads at expiry

J

jimmyjazz

I'm curious to see if there is a "standard" way that brokers deal with debit spreads where both legs are ITM at close of business on expiry Friday. (For the record, I use optionsXpress. Need to rectify that.)

I have Dec13 call spreads on AAPL and CMG that both appear to be on their way to closing ITM tomorrow afternoon. oX indicates that assignment on the short leg (shares called away from me)) will be offset by automatic assignment of my long leg (shares called by me). Am I reading this right? The notional value of each leg is pretty scary.

What if the short leg goes OTM but the long leg is ITM at close tomorrow? Now I'm calling away a huge $ amount of stock (at a slight discount). Sounds good, but I'm exposed until open on Monday, right?

These thoughts haunt me. I'm always trying to figure out the "doomsday event".
 
The bid/ask on the AAPL trade is pretty wide. The midpoint is still currently a loss.

I did manage to close the CMG spread @ $2.45 (paid $2.25), so I captured almost the whole gain there.
 
Quote from jimmyjazz:

I'm curious to see if there is a "standard" way that brokers deal with debit spreads where both legs are ITM at close of business on expiry Friday. (For the record, I use optionsXpress. Need to rectify that.)

I have Dec13 call spreads on AAPL and CMG that both appear to be on their way to closing ITM tomorrow afternoon. oX indicates that assignment on the short leg (shares called away from me)) will be offset by automatic assignment of my long leg (shares called by me). Am I reading this right? The notional value of each leg is pretty scary.

What if the short leg goes OTM but the long leg is ITM at close tomorrow? Now I'm calling away a huge $ amount of stock (at a slight discount). Sounds good, but I'm exposed until open on Monday, right?

These thoughts haunt me. I'm always trying to figure out the "doomsday event".
More...

Brokers will automagically exercise any 0.01 ITM option. If both are in, you are at max profit so just ignore, they take care of everything. If one is out, you can decide to do an MCO order on expiration friday, or not. If you let that one expire, you still made most of your profit, so it comes down to commission vs. net profit as to whether you pull any triggers. By the way, this is a good discussion to have with the peeps on the phone at OX. They charge a lot so you should demand answers to any/all questions like this. It's also in the risk manual you received. Study it. Also the education center section for OX is not terrible - look into trading level 4 on spreads :cool:
 
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