I am now confused about options. Say that I bought a calendar spread, selling an august call with a 25 strike, and buying the sept call with a 25 strike. If at expiration the calls are in the money and the august call is automatically exercised, what happens? Do I receive a short position or is stock bought and sold automatically from my account, or do I have a choice? Thanks
You would probably want to close this short Aug call position out before the expiration close because your long Sept call will be worth more because it still has time value in the option. The idea on a calendar spread is to collect the time decay premium. A lot of new option traders buy front month options because they seem cheaper but they really are not! Check out this link it will do a better job explaining then i just did! http://www.theoptionsguide.com/neutral-calendar-spread.aspx Rick
You sell the stock at 25. You have no choice. Your net position in the stock should be your choice. You may offset all or part of the assignment by simply buying shares before expiry. However, if the stock is unshortable or there are margin issues, your broker may buy back the shares. In these cases it depends on the broker's policy. You may be given time to resolve the issue yourself, but generally, not much time. Obviously, with puts, where you are assigned long stock, the issue is only with margin.