5pt spread expiring at 4.7?

Discussion in 'Options' started by a529612, Jul 20, 2007.

  1. I'm trying to close out an expiring 5pt bull vertical spread position with the underlying way above the upper leg. For some reason, the vertical bid is stuck between 4.7 and 4.8 all day. Theoritically, it should close at 5 or at least closer to 5 like 4.9. Are the MMs trying to jerk the spreaders around until the very last minute? Thanks!
  2. Are you referring to the bid to close the long spread? Often the b/a ask will surround $5.00 so that you would b forced to pay more than $5 to buy or receive less than $5 to sell on expiration day this late in the day. basically if you want full $5.00 you are better off just letting it go to expiry so the legs will cover each other.
  3. Are you sure I can just let the positions expire without incident? I don't have equity to buy the underlying stock when the Jul 80 call gets auto exercised. Thanks!

    Long 10 CVXGP Jul 80 Call
    Short 10 CVXGQ Jul 85 Call
  4. If these options are deep in the money then both the long and short call will be exercised together and the stock bought at $80 will be called from you at $85. The real risk is if the stock is floating around $85 and it closes just below $85 and you have to take possession of the stock. Your broker should allow you to sell the position Monday but what if stock gaps down.

    If there is risk of $85 strike not being ITM and assigned then get out at 4.70 isntead of risking more on an extra $0.30.
  5. Just called the broker and he said I will get a Fed call if I just let the positions expire and not have enough equity to cover the trade (auto exercise to buy the stock at 80 and sell at 85). So I closed the positions at 4.95.
  6. That's nuts. Find a new broker.
  7. Which broker will let me trade spreads like that without incident? Thanks!
  8. Bro, you're trading an eight figure account. You don't know the games us poor folk play.

    With auto ex it used to be easy for under monitored accounts to take over the weekend shots. Think about it. A 10k guy buys 1000 calls slightly ITM for a dime and then voila' on Monday he comes in long 100,000 CSCO.
  9. Understood, but I am referring to a scenario in which both strikes are materially ITM.
    #10     Jul 21, 2007