Little confused about expiration

Quote from mynd66:

Lets say hypothetically speaking that I have an account value of $500.

I initiate ONE 100/105 bear call spread on XYZ for a net credit of say $3.

XYZ 100 call= $5, XYZ 105 call= $2.

If at expiration XYZ is at 105 will I be required to buy 100 shares of XYZ at $105 thus being long 100 shares of XYZ requiring $10,500 (margin call) OR just pay the difference ($500)?

Will the account value support this trade?

Besides unlimited risk to the upside, what if I just sold the XYZ 100 call naked with the same outcome? Will margin requirments prevent this trade?

I now find myself confused with this.
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a lot of places wouldn't let you put on this trade without an account value of at least $2k (minimum for margin). But if you could put it on and it's close to 105 you should probably either close the position out or inform your broker that you will exercise the 105 because some will not let you carry the risk over the weekend, especially if your account value is only $500
 
Quote from dagnyt:

No notice?
No warning?

$4.80 was a horrible price when spread was worth only $4

Why didn't you cover yourself????

Mark
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sorry. i miswrote , I had put a limit of 4.
but AZO was hovering at 159.80-90 range. when they pulled the plug on it.
 
Quote from darwin666:

sorry. i miswrote , I had put a limit of 4.
but AZO was hovering at 159.80-90 range. when they pulled the plug on it.
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Did they at least have the smarts to cancel your bid when they closed the position for you?

Mark
 
I personally am of the opinion no broker would let you open this position with that margin positon.

I haven't shopped around every broker, but at least on IB, Fidelity, and TDA... their margin requirements would preclude you from placing the order in the first place.

On TDA/IB, I know that when I *cover* a naked call by buying the underlying stocks... my margin maintenance amount actually goes *down*. (Yes, by buying stock, I actually dropped my margin amount.)
 
Quote from heech:



On TDA/IB, I know that when I *cover* a naked call by buying the underlying stocks... my margin maintenance amount actually goes *down*. (Yes, by buying stock, I actually dropped my margin amount.)
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the same will happen if you buy a call to turn it into a spread rather than a naked call
 
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