Question about calendar spreads assignment risk

Ok,here we go..

If you get assigned on your short put,you are now long stock from the assignment and still long

the put from the initial spread. Long Stock + Long put = Long call,and in your case you are "synthetically" long the 272 call with apx one month to go....

Quiz..Would you rather get assigned with the stock at 250 or 271.95 and why??

If you can digest this,LMK and we can carry on :)





trendisyourfriend said:
Thanks for the reply taowave.

If the stock closes below 272, will the long put that's in the money cover any loss incurred from assignment of the short put? Both the long and short put have a strike of 272.

Does the long put need a higher strike price in order for me to profitably exercise it if the short put gets assigned (similar to a bear put spread)?

Thanks
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taowave said:
Ok,here we go..

If you get assigned on your short put,you are now long stock from the assignment and still long

the put from the initial spread. Long Stock + Long put = Long call,and in your case you are "synthetically" long the 272 call with apx one month to go....

Quiz..Would you rather get assigned with the stock at 250 or 271.95 and why??

If you can digest this,LMK and we can carry on :)
More...

Thanks for the reply. I'd rather get assigned the stock at 271.95 because as a seller of the put, when assigned, I have to buy 100 shares at the strike price and then sell them again for a loss to close the position. At 271.95, the loss will be smaller compared to 250 (assuming a 272 strike). Am I correct?
 
cesfx said:
Payoff on front expiry, is it not more similar to a butterfly?
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butterfly has capped upside and downside.
for calendars, feel free to sell front month and buy back month to see that you have unlimited risk
 
2rosy said:
calendar spread you have unlimited risk and limited profit.
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Show me pls the PnL diagram of the calendar you mean.
I showed you a LongCalendarSpread and there the loss is limited (capped), ie. is not unlimited (when closing the longer one at expiry of the shorter one).
Could it be that you mean a ShortCalendarSpread?
 
Last edited:
2rosy said:
butterfly has capped upside and downside.
for calendars, feel free to sell front month and buy back month to see that you have unlimited risk
More...
Do you mean at expiry of the shorter one or at expiry of the longer one?
I guess you mean the latter case.
The alternative is to close the longer one at expiry of the shorter one.
How is your result for this case then?
 
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