Spy vertical

[met1989]

I sell only spy 290 put
And buy a 285 spy put
Now it’s a vertical
Now if they both expire or they have been assigned
What is my MAX loss?

 

[guru]

You max loss is $5 (the width of the spread) excluding the credit you originally received for this trade.
So if you received $1 credit then your max loss is $4. (per share, so $400 in absolute terms)

 

[met1989]

But if I sell 290 and buy back 285 so I’ll be assigned the shares no?then still my loss will be 400$?

 

[guru]

Depends where the price lands at expiration.
If the price ends up below $285 then you'd be assigned shares from short put but exercise shares from the long put - so as result you'd automatically buy and sell 100 shares at the same time, and just lose $400.
If the price ends up between $285 and $290 then you'd be assigned shares based on your sold $290 put. But assignment isn't bad by default. Sometimes the stock will move up overnight, other times down, so if you do this several times then you should be at around the same profitability as if not being assigned shares.
But indeed, your max loss can become larger if you get assigned shares and the stock price immediately drops overnight.
You could deal with this by exiting/closing your trade several minutes before expiration (before market closes on the expiration date), or even any earlier date/time.

 

[met1989]

So in my thinking it is better to trade spy then spx options cause in mcasr markets turns against me I will still be left with Shars who one day will go up no?

 

[JBuck]

You max loss is $5 (the width of the spread) excluding the credit you originally received for this trade.
So if you received $1 credit then your max loss is $4. (per share, so $400 in absolute terms)

Don't forget to factor commissions and fees into the equation. They may be small(er) these days but can still add up.

Best

 

[ajacobson]

Rare, but Max loss could be more what you expect. 290 get's exercised and overnight the SPY loses - pick a number. Exercise you buy at 290 less premium you received. Not common, but it moved 100 points today. Trade out early

 

[met1989]

Rare, but Max loss could be more what you expect. 290 get's exercised and overnight the SPY loses - pick a number. Exercise you buy at 290 less premium you received. Not common, but it moved 100 points today. Trade out early

i would probably buy in the last 5 minutes of the trade of day of expiry if its in the money

 

[ajacobson]

Trade out of it irrelevant of price.

 

[met1989]

Trade out of it irrelevant of price.

Why?