Lose more money than the cost of your calendar? Ahem :eek: *mumble, mumble... That's nonsense!) The market maker will be there to buy your long option to close. You could always exercise your long to cover your assigned short but no one would do that unless it was trading below parity. Short answer: not gonna happen
See the attached RUT calendar position from my trading acct. You can see open price and close price. I ended up closing the position by paying 1.7 extra per spread. I mean I lost initial debit as well as an additional $170 per spread.. Before that trade I was under the same impression that I can not lose more than what I paid. If it was stock that I can afford, I can excercise and sell for even. Since it was index and cash settled one, I didn't had any option other than selling for whatever someone is ready to take...
I was just wondering. Given the fact the there should minimal risk associated with breaking in and out of the short leg (I guess a spread order can handle this) if you run into assignment (buy stock, deliverm re-sell option), is there any brokers or other companies that for a small fee will finances such a move?
The Jan puts were worth more than the Febs?! Not sure what happened there....did you contact your broker about this? So you want to be able to buy insurance from your broker to protect your capital in case of an assignment? There's no need for that. Just trade vertical or diagonals instead. ie. make sure your longs are more ITM. I remember when I first looked into calendars...they seemed kinda good. But while I was paper trading an OTM call calendar I discovered that you could lose your entire debit even if the stock does what you want it to do!
Even if I had the long leg deep ITM why do I want to have to close the entire trade just because someone decides to exercise the short leg. Trading diagonals will also cost you more initially to finance the longer leg ITM. I guess you canât have it all. Anyway thank for pointing it out, it would be a good idea, if you want to trade calendars, to have a plan ready, with you broker, if the short leg suddenly get removed from under you. A spread order to both buy stocks and sell new calls would be a guarantee to finance the transactions.
The reason I had to close was expiration day of Jan shorts. Last thing I want is impact of cash settlement and unknown headches as my account doesn't have funds to hold big Feb ITM puts. Broker (IB can issue margin call, liquidate at bid which can be otherside of the his automated trade).
... there's no sure thing such as "low risk to add income". For books look up Amazon's reviews (and you should've known it already), and use google. L. McMillan's bible is probably the best thing if you're serious about learning options.