I was wondering if it is safe to set up a Bull Put Spread a day before expiration? I get a credit of 50 dollars. Do I get to keep the credit if they expire worthless the next day?
Any short PUT's that Expire ITM will get Assigned to you. So you will end up Long Stock. If this is what you were attempting, you will achieve it. Keep learning Carl
you are willing to lose money to gain a $50 credit? what else is going on with this trade? is there something coming up that you aren't saying? if so, it may make you a ton of cash provided your stop isn't taken out first and you buy the stock! otherwise, I would just put on a spread a few months away.
No, it is not "safe" to put on the spread. It's not free money - you take on risk. Yes, you get to keep the credit if the options expire worthless.
You want to do these on bullish stocks 30-40 days out and earn via theta decay ... not play gessing games on expiry week.
How many people let credit spreads exp worthless? There is a great deal of gamma risk associated with this, no? Obvious bonus is no two bid/ask's to close off the trade which has the advantage over debit spreads.. How many people trade credit spreads all year round or in low volatility (relatively) situations like now? Out of 10 credit spread trades for example how many of those would you leave to expire worthless? If there was an equivalent debit spread that had no disadvantage to the credit variety and volatility was low, would you still do the credit spread? Thanks!
gamma risk is huge ... pigs get slaughtered when they let their short puts worth .05 just sit there. The SEC did everyone a favor by announcing this on OPT EXPIRY FRI ... only asswipes still had short cheap puts on GS. in low volatility I have been avoiding selling for credit. It sucks you in too tight to the current strike .. and any increase in vol will kill you .... its like selling when the price is low ...not a statistical advantage! Mostly stuck with covered calls sold at peaks. Calendar spreads are another good strategy for low (and hopefully rising) vol.