Question Reguarding Bull Call Spreads.

Discussion in 'Options' started by CandleStick77, Jan 5, 2010.

  1. I have a question reguarding bull call spreads. I am going to use a current example of a stock I picked out. Lets use CitiGroup.

    Right now Citi is trading at $3.53 and lets say I think its going to go up. So I look up the Call list and find the March calls with 74 days to expiration.

    I buy 10 March 3 calls for $620.00
    Write 10 March 4 calls for $140.00

    This leave me with a Net debit of $480.00

    Now my question is this. Lets say Citigroup goes up to $6.00 and before expiration my calls that I wrote get exercised (Or even at expiration). Do I have to have the capital in my account to transfer all the stock? Meaning 1000 shares of citigroup at $4.00 equaling $4,000? Or is it done instanteously without requiring the full capital because of the previous calls that I own?
  2. MTE


    If your short calls get assigned prior to expiration then you would be short the shares and your long calls would NOT be automatically exercised. You would have to manually instruct your broker to exercise them. Assuming there was no dividend involved it would be a blessing to get the shorts assigned prior to expiration as you would instantly be able to realize the max profit by exercising the long calls. If the early assignment was due to the dividend (stock going ex-div) then you would still be able to exercise your longs and realize the max profit, but you would be responsible for the dividend, hence your profit would be reduced by the amount of the dividend.

    At expiration all options that are ITM by 0.01 are automatically exercised so if the stock is above the short call at expiration then you don't have to worry about anything as your long call would be automatically exercised and offset the assignment of the short call.