Equity Vertical Spreads

Discussion in 'Options' started by newtooptions, Jan 13, 2020.

  1. After reading about vertical spreads, is there a way that you never have to exercise either side and just let both legs expire and receive the limited profit or loss. This way you do not need margin or maintenance requirements? I hope this makes sense what I am asking. Many thanks for any help!
  2. No, it makes no sense. Please try again. Or perhaps read some more and then try again, if necessary.
  3. Hi TooEffingOld, let me rephrase it for you. Can you do vertical spread options without EVER having to exercise either side of the options and still only have the limited loss or profit by letting them expire?
  4. There're a lot of issues here....regular exercisable options or cash-settled? debit trade or credit? how far in- or out of the money (of course, can always end up itm)? account size? position size percent of account? reg-t or pm?

    Trying to glean your intention, how do you feel about putting on a debit trade on SPX, bullish or bearish, pick your strikes. Analyze it and come back.
  5. Gotcha! as my name implies, definitely new to options. I guess my intention would be to eliminate having maintenance requirements or cash available to exercise an option and paying for the entire position (example: 100 shares of a $100 strike or $10,000). Out of the 4 vertical spreads I reviewed, Bull Put Spread, Bull Call Spread, Bear Call Spread and Bear Put Spread is there one or more I could use and let expire with a limited loss or gain but no worries of having to exercise.
  6. Sorry, before I spend any more time on this thread, I gotta ask you to think about a vertical on SPX, which means figuring out why I picked that underlying and why I suggested a debit trade. If you can talk about those things, then your follow-on questions will be more informed.
    newtooptions likes this.
  7. guru


    When trading options on equities, you risk an assignment, which occasionally may happen even before the option expires. This is not the worst thing because my broker (IB) would give me the next day/morning to close the stock position and get back to clean slate, even with negative margin, at least from what I remember in the past.
    Most of the time if both legs are ITM at expiration then you should also end up without any shares, though this may depend on the broker. Some brokers, say Robinhood, may automatically try to close your position after 3pm on the expiration date to prevent potential assignment.
    Best case scenario is to end up with both options OTM and then indeed you’d have nothing to worry about.
    You can also trade such spreads and buy/sell them before expiration. In such case you may only lose a bit on the bid/ask spreads if the options aren’t very liquid, besides commissions.

    If a single leg is about to end up expiring ITM then it may be best to close your position right before expiration.
    newtooptions likes this.
  8. Hi tooeffingold - I believe you chose the spx due to the cash settlement aspect and the debit side because if it goes up both options expire in the money and you settle cash and if it goes down but settle worthless. Light bulb!! I hope that makes sense as I’m just learning! Thank you
    taowave, TooEffingOld and guru like this.