[ASK] Credit Spread with ITM on sell option

Discussion in 'Options' started by ANCOLL, Apr 10, 2007.



    Dear Trader,

    A few ago, I buy 5 call option PVH @60 $2.90

    but it went down to 57.10 and I lost with those option,

    Then to recover my lost, I open another position which brought me to credit spread I open sell 5 call option PVH @55 and receive
    $6.20 - $3.70 = $2.5 per option, enough to cover my lost
    (picture attached)

    My question is,
    even though I can cover my lost, is there any chance my sell option be exercised? because my sell option is In The Money bracket.
    If it happened, I will lost more from my own credit spread.
    but i am thinking it's still on sept 07, it's still safe.... in my opinion.

    So i need comment and advise from other option traders,

    Thanks before
  2. MTE


  3. u21c3f6


    Please correct me if I am wrong but this is my understanding of what you wrote.

    It appears to me that you were bullish on PVH when you bought the 60 calls. But now you have converted that into a bear call spread to "cover" your "loss". My concern is, did you really change your outlook on PVH from bull to bear?

    The only time I try to "cover" a loss is when the new trade makes sense to me and my outlook for the stock. To make a trade solely to "cover" a loss IMO is throwing good money after bad if there is no other reason for the trade.



    you are right with your opinion, Joe
    Now I am afraid my credit spread will be exercised.
    I heard option only can be exercise during expiration day

  5. short options can be excercised anytime. however, they are more likely to, when there is no extrinsic value ("time value") to them.
  6. This makes no sense given the prices you are quoting.

    You have a net debit of $2.90. The option chain you posted shows the $60 calls are trading at $3.40/$3.70. Why would you convert to a bear call spread instead of just selling the call for a nice profit?

  7. MTE


    European style options, almost all index options, can be exercised only on expiration day.

    American style options, all equity and ETF options and some index options, can be exercised at any time during the life of the option.
  8. I was assigned a couple of months ago on a TLT call at 3AM! (Eastern)Very annoying as I (a retail customer) can not cover until AFTER market open. Shouldn't there be a rule that assignment can only occur DURING market hours? It does seem very unfair to the retail customer. WHO is allowed to exercise a put or call after or before market hours?

    The other thing with the TLT is that I LOST my dividend on the exercised shares even though I replaced them the same day they were exercised.
  9. Everyone. Option exercises are randomly assigned by the OCC in a batch during the night. If it appears you have instantly exercised your call, it's only because the broker is making it appear that way.

    In other words, there's no such thing as an instant exercise "during market hours".
  10. so just to clarify. IF I were on the other side of the trade I would have exercised thru my broker those TLT calls the previous day...then during the nite the OCC randomly assigns the calls? ok I get it. thx

    FYI to all...so if you have short calls on a high div stock you WILL most likely be exercised even when there seems to be pretty good extrinsic value remaining. This happened two weeks prior to expiration.
    #10     Apr 10, 2007