Still new to options.. If you have a vertical bull call spread, if by expiration the stock price is higher than the higher strike price, I know that's the point where you reach your maximum profit potential. I'm assuming this is done by exercising the option and selling it back to the buyer of the short call for profit. How is this done using thinkorswim? Does thinkorswim execute all of that for you upon expiration automatically? Also what happens if someone wants to exercise the call you are selling them prior to expiration?
No, you just sell the whole positions ( 2 legs) with a profit. Technically your just "reverse" the positions that you opened. Example: XYZ was $101 a month ago, you buy a call $100 and sell and call $105 for a debit $2 XYZ is $104 near expiration, you decide to close the position and take your profit, what you will do is you sell your $100 call and buy $105 call, and end up to be a credit of, let say $3.80, in which you make $1.80 (minus commission). Note: If XYZ is $107 at expiration (both calls are DIM), if I am you, I will do nothing and TOS will exercise your long $100 call and short $105 call automatically after expiration, in which will result of $5 credit (minus exercise fees) in your account on Monday. This is assuming XYZ was NOT fall below $105 after market closed on Friday. The chance that someone exercise your short position before expiration is almost zero . This is from experience.
Since I'm new to options trading, I've been trading with a pretty small amount of cash in my account. Let's say I can afford to buy the spread but don't have the cash to exercise at expiration.. do I just have to close out the position before expiration?
Just close out the position. Honestly, no one ever exercise the option at expiration as this will cost you more (exercise fee, cash to long/short stock). Option trader normally just "close" the positions (buy back the short leg & sell the long leg)