Hi everyone, I've been practicing options trading mostly virtually the past 6 months and I'm starting to look at combination orders, so bull/bear spreads, iron condors and such. My main question is what happens when one of the options I've written in these combination orders gets executed? (This doesn't seem to occur with my virtual account). Am I left having to fork out for the entire 100 contracts and then execute the other leg of the order to cover losses? Or does my broker just deduct the losses and close it off? I currently use interactive brokers. Thanks
I think you mean exercise, not execute. Yes, you’d end up with long or short shares and can sell or buy them back the next morning and close your other leg(s), or reshuffle. Depending on the combo, some of your other options may offset your risk. Other times you’ll make small amount or lose small amount, which in the long-run may wash out. Doesn’t happen often anyway, though I’ve also learned to pay attention and stay away from high-probability assignments.
Hmmm, IB just told me over the phone it's cash settled so don't have to worry about the 100 contracts or $ up front. Does that sound correct?
It depends on what you are trading... Index options, such as SPX & RUT are European style settlement (no early exercise).