Spreads and early assignment

Discussion in 'Options' started by AKC, Sep 25, 2010.

  1. AKC

    AKC

    I am fairly new to options and I am trying to understand how an assignment to part of a spread would affect p/l. Using a short put butterfly as an example using GOOG
    500 2.75/-1
    510 7.55/+2
    520 15.60/-1
    total credit is 3.25 or $325 stock is at 505.35

    now lets say a few days later the 520 put is assigned early.
    500 8.25
    510 18.00
    520 27.95
    the trade at this point is up $305 and the stock is at 492.01. Now lets say that I were to exercise the 510 puts to cover the 520 assignment and decide to exit the rest of the trade (sell the remaining 510 long and buy back the 500).
    I calculated the trade to be down $505, is this correct?
     
  2. spindr0

    spindr0

    Just add the closing transactions to the initial credit.

    + 3.25 initial credit
    - 520.00 buy stock (520p assigned)
    + 510.00 sell stock (510p exercised)
    +18.00 sell 510p
    - 8.25 buy 500p
    --------------------
    + 3.00