Credit Spread Assignment - Any Experience?

[Toothyfish]

Hi,
I've never been assigned and am curious as to how much cash I need during the process.
Eg.
If I sold 10 Bull Puts on say BHP. Say Sell $30 and Bought $29 put and BHP closed at $28.50 after expiry.

Does the $29 bought Put cap the 10,000x$1=$10,000 cash loss from my account or do I need to go through the whole process of Excercising the $29 put and delivering the shares to the lovely person who excercised the $30 contracts.
If this is the case would I need $290,000 cash to settle this deal?
I know brokers vary, but is there a general consensus for most brokers

many thanks

 

[investedz]

Usually the broker would exercise your long option automatically to cover the exercised sold put, and you would need the addition sum of the difference between the puts in your account to cover the loss:

Difference of strikes(30 - 29) * 1000 shares * 10 bull puts = $10,000

So your potential loss is $10k, hence you need this extra balance in your account.

But beware also of pin risk, which is what I went through from personal experience.


Edit: Just like to add, that you should also ask your broker, to be on the safe side.

 

[wayneL]

Hi,
I've never been assigned and am curious as to how much cash I need during the process.
Eg.
If I sold 10 Bull Puts on say BHP. Say Sell $30 and Bought $29 put and BHP closed at $28.50 after expiry.

Does the $29 bought Put cap the 10,000x$1=$10,000 cash loss from my account or do I need to go through the whole process of Excercising the $29 put and delivering the shares to the lovely person who excercised the $30 contracts.
If this is the case would I need $290,000 cash to settle this deal?
I know brokers vary, but is there a general consensus for most brokers

many thanks

It'll cost you fees too.

The best thing is to trade out of it before expiry.

 

[Toothyfish]

Thankyou for sharing your experience investedz and wayneL.
These are things are usually found out the hard way.
I've been lucky so far not to be assigned. Usually have closed my positions way before they become Close to The Money. But was curious as to how much spare cash I need if any spreads became ITM.

BTW WayneL, there's so much goodies from your blog and on the ASForum. Thankyou.

 

[wayneL]

Thankyou for sharing your experience investedz and wayneL.
These are things are usually found out the hard way.
I've been lucky so far not to be assigned. Usually have closed my positions way before they become Close to The Money. But was curious as to how much spare cash I need if any spreads became ITM.

BTW WayneL, there's so much goodies from your blog and on the ASForum. Thankyou.

No worries m8

 

[cutz]

Hi,
I've never been assigned and am curious as to how much cash I need during the process.
Eg.
If I sold 10 Bull Puts on say BHP. Say Sell $30 and Bought $29 put and BHP closed at $28.50 after expiry.

G'Day,

I've never been caught between a spread on expiry but i would assume that you need to manually exercise the $29 put on expiry day to unload the whole position.

If you don't the earliest you can sell your assigned stock is on the friday (assuming shorting is impossible) but the assignment T+3 clock started ticking on thursday so there's a settlement gap of one day, then of course you run the risk of the stock gapping down the next day which would be an ugly situation.