Vertical Spread Assignment

[TskTsk]

The OP is referring to a Debit Spread. His concern about being assingned on his short position is unfounded and he isn't screwed, the position is at or very close to maximum profit. The best thing to do is to close it, problem solved.

Fair enough, but even if it's a debit spread that's in profit, I believe your margin would increase as you're assigned the shares. What if you're assigned with just like 5 cent profit on the spread...and now you're given thousands of shares instead that you have to hold.

 

[FXforex]

Fair enough, but even if it's a debit spread that's in profit, I believe your margin would increase as you're assigned the shares. What if you're assigned with just like 5 cent profit on the spread...and now you're given thousands of shares instead that you have to hold.

The big question is:

Why keep the position open?

 

[TskTsk]

The big question is:

Why keep the position open?

Because that's the entire premise of OPs post...he asked what would happen if he was assigned

 

[FXforex]

Because that's the entire premise of OPs post...he asked what would happen if he was assigned

Assignment is a mute point. The OP doesn't understand his position if he is worried about early assignment.

• $5000.00 account.
• All of it tied up in a debit spread.
• The short leg is ITM

Perhaps the OP can post back and answer the question:
Why keep the position open?

 

[Viva]

The position would still be open because it hadn't reached maximum profit yet.

I talked to Optionshouse, though, and they gave me the specifics about how they handle assignment.

Thank you all.

 

[FXforex]

The position would still be open because it hadn't reached maximum profit yet.

It would be very close to maximum profit and best to close. It is very foolish to try and squeeze every penny out of a winning position that can turn against you at any time. Why risk a nice profit for a 100% loss? Options are like that.

Do not look a gift horse in the mouth.

 

[FXforex]

• You posted a May23 AAPL 595/605 call spread at $443.00. The 595 call can be bought for $6.85 and the 605 call is selling for $2.42. See post #3.
• I think being long the May23 AAPL 600 call is better at $425.00. The 600 call can be bought for $4.25. See post #5.
• On Friday May 23 lets see which position is the winner.

As of 3.35pm EST the numbers are in:

• AAPL at $614.49
• The May23 AAPL 595/605 debit spread can be closed for $950.00. The bid on the 595 call is $19.15, the ask for the 605 call is $9.65. Profit $507.00.
• The May23 AAPL 600 call position can be closed for $1440.00. The bid for the 600 call is $14.40. Profit $1015.00.

This is a good example to avoid Debit Spreads. If you want to lower the risk go with a long position 1 strike further OTM, any potential gains are not capped.

 

[jimmyjazz]

I don't think a single instance where the underlying closes above both strikes on a vertical proves anything. The vertical reduces breakeven, changes the whole structure, etc. Sure, shorting the upper leg cut his profit this month. What does it do over time?

 

[butterfacetrader]

I don't think a single instance where the underlying closes above both strikes on a vertical proves anything. The vertical reduces breakeven, changes the whole structure, etc. Sure, shorting the upper leg cut his profit this month. What does it do over time?

Exactly. FXforex doesnt have very good attention to detail and needs to take his meds. In spite of constant passive aggressive attitude throughout this thread, I've even said so myself in post #6 that I don't do verticals all the time. Yet he has to keep coming back again and again with the nonsense about the AAPL example, which was used as an example of a vertical spread as per the topic of the OP, not long calls only.

Just because the HFTs decided to ramp the S&P above 1900 on a quiet day last friday and AAPL was the easy tool to do it, made AAPL go above both strikes. And he thinks hes so smart buying just the call.

But suppose AAPL ended the week at 605. He would have walked away with little to no profit with his long call, and the vertical call spread would have made double investment. Suppose AAPL ended at $604. He would have scratched, and the vertical call spread made a profit. Suppose AAPL ended $603, he would have lost money and the vertical call spread would have made a profit. Thats the difference.

His suggestion of just buying further OTM strike options to reduce cost is ridiculous also. Extrinsic premium will dry up over time, and the strike & intrinsic value matters. Anyone can buy a $700 call of AAPL for peanuts due next few weeks but if AAPL doesnt get there you're just throwing money away.

The verticals are expressly to reduce cost of putting a position on. Nevermind that it caps some upside.

 

[FXforex]

I don't think a single instance where the underlying closes above both strikes on a vertical proves anything. The vertical reduces breakeven, changes the whole structure, etc. Sure, shorting the upper leg cut his profit this month. What does it do over time?

Would you like another demonstration that being long puts or calls is vastly superior to a debit spread in terms of risk and reward?

Post a debit spread of your choice and I will move the long position up 1 strike and eliminate the short position. We then can watch the progress on both positions.