It's great to have a forum for newbies.
I'm reading about put credit spreads. I have the same question, both before expiration and at expiration.
Before expiration: Suppose that I sell a one-month put spread a couple of strikes below the current price, hoping to keep the premium. I sell it as a vertical spread, using a single trade. Then if I want to keep from losing the difference between the strikes, I should set up a conditional order to reverse the position if the stock approaches the short strike. But suppose I am too lazy, or I forget to do this, or suppose I actually do set a stop order but the stock is dropping like a rock and my stop order cannot not be executed quickly enough. Now the short leg is in the money, and the buyer exercises the short leg before expiration. The long leg is still out of the money. Also suppose that my cash position will cover the strike difference, but will not cover the stock price. Will my broker put the stock to me, using margin since I don't have the cash to cover it, or will he exercise the long call that is out of the money?
At expiration: Same situation, I am between the legs at expiration, so I am assigned the stock. Will the long out of the money option be exercised or will I buy the stock?
Thanks for your help!
Mary
I'm reading about put credit spreads. I have the same question, both before expiration and at expiration.
Before expiration: Suppose that I sell a one-month put spread a couple of strikes below the current price, hoping to keep the premium. I sell it as a vertical spread, using a single trade. Then if I want to keep from losing the difference between the strikes, I should set up a conditional order to reverse the position if the stock approaches the short strike. But suppose I am too lazy, or I forget to do this, or suppose I actually do set a stop order but the stock is dropping like a rock and my stop order cannot not be executed quickly enough. Now the short leg is in the money, and the buyer exercises the short leg before expiration. The long leg is still out of the money. Also suppose that my cash position will cover the strike difference, but will not cover the stock price. Will my broker put the stock to me, using margin since I don't have the cash to cover it, or will he exercise the long call that is out of the money?
At expiration: Same situation, I am between the legs at expiration, so I am assigned the stock. Will the long out of the money option be exercised or will I buy the stock?
Thanks for your help!
Mary
