I have never tried this. KODK options expire Friday, I buy the OTM call and sell ITM call, just one contract for an $80 credit expecting the ITM go to OTM. So what happens on Friday if the call for some reason is still ITM? I get a short 100 KODK and keep the premium? I am in an IRA so that is not possible plus KODK is hard to borrow. Will my broker adjust the account for cash with the closing Price on Friday? I am thinking of closing it before the end of the day regardless but my question is just to educate myself. I rather just let it expire and assigned if I knew how it would play out. KODK had a huge jump on some bogus news that turned out to be NOTHING. I think they will go bankrupt!
I think this is most commonly answered question here. Discussed just a few days ago: https://www.elitetrader.com/et/threads/small-2500-accounts-early-assignment-and-margin-call.349395/
Thanks for the link... still, the mystery remains if I were short at 5-bucks of KODK over the weekend(a bit risky) or were my broker close my out somehow (on Friday) that would be preferred. But I do not see how. If we are waiting till Tuesday, I would be naked short. I am asking my broker this right now. I will find out Friday (or hopefully before). If my ITM goes OTM that would be nice, but if it is too close at closing time that is too much excitement for me for $80, I'll take less. Monday is Labor Day, no market.
Yes, it's generally better to close your whole position if you are simply getting close to the risk of being assigned. Otherwise, if your long leg expires and you end up with short shares, then you do risk them moving too much in undesired direction and making you lose more than you've projected. I know that Robinhood solves (or tries to solve) this issue, by automatically closing spreads and positions of their customers 1 hour before market closes on the expiration day, if their options/legs are ITM or near ITM.
Thank the Lord I got out just in time. Who would have thought that D.E. Shaw & Co. has taken a 5.2% stake in the company.
Yes if by the expiration of the option, the ITM option still remains ITM, you get to keep the premium and you MAY get assigned (there is a chance you might not) and be short 100 shares. If you close the short option, then you only get to earn the difference between what you sold it for and what you bought it back at, not the full premium.
I only lost $10. I think the news of D.E. Shaw & Co. has taken a 5.2% came in after the market closed. I was short the 5 strike call. Lesson learned - never short a cheap stock for $80. I had a second look at the trade and it just did not feel right.