Order of operations after early exercise of bear call spread (futures options)

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panaceus

I'm trying to assess a bear call spread in /CL. I've looked through a few threads on early assignment, but I'm hazy on when the futures and options markets are open/liquid. Supposing my short call goes ITM, and is for some reason exercised early--what's the best reaction after I receive my overnight assignment notification?

1) Exercise the long call immediately to close the futures position?
2) Sell the long call, using the proceeds to close the futures position?
3) Simultaneously resell the short call and use the proceeds to close out the futures position (not sure if this is possible)?

Or something else? All advice appreciated. I'm on ToS.
 
i960 said:
4) Cover the underlying which you'll now be short on.
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The underlying is the futures position though, yes? I had thought all three suggested options were variations on that theme. Or am I missing something?

EDIT: Future is not actually cash-settled, but I will need to pay cash to close it.
 
panaceus said:
The underlying is the futures position though, yes? I had thought all three suggested options were variations on that theme. Or am I missing something?

EDIT: Future is not actually cash-settled, but I will need to pay cash to close it.
More...

I was throwing it out there as an additional possibility in case you felt like continuing to hold the long calls. If you just want to get out, then option 2 would probably be best.
 
i960 said:
I was throwing it out there as an additional possibility in case you felt like continuing to hold the long calls. If you just want to get out, then option 2 would probably be best.
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I see what you're saying. I'm assuming that my overall account position would be distressed by the assignment, and so that wouldn't be possible. Thanks for the clarification!
 
panaceus said:
I see what you're saying. I'm assuming that my overall account position would be distressed by the assignment, and so that wouldn't be possible. Thanks for the clarification!
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I've never dealt with assignment and FOPs before (my recommendation is to search threads here), but I would have figured they'd just assign you a short position with the entry price the same as the short strike and it'd have margin accounted as usual for the underlying (i.e. 5k or so).
 
Does anyone have insight as to whether option 3 is viable? That is, simultaneously reselling the short call and using the proceeds to close out the futures position? It seems like it should reconstruct the position while capturing the remaining time value of the exercised option, if the market hasn't moved too much.

This only applies if there is time value remaining, of course.
 
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