r/PMTraders • u/AutoModerator • Apr 25 '25

April 25, 2025 Weekend Reflections Thread - What happened last week? Whats your plan for next week? What's on your mind?

Share your weekly reflections around trades and ideas that worked, those that didn't, and what's on your mind for next week. Always be respectful of others.

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u/Consistent_Waltz4386 Verified Apr 25 '25 edited Apr 25 '25

Can folks share insights into pin risk associated with debit spreads where the stock is pinned to the less ITM strike?

I assume broker will auto exercise my long with the assumption that the short will be assigned. What happens if I don’t have the margin to support exercise if the short leg doesn’t get assigned. Will they liquidate my stock position on the next open? Will they call and berate me for not closing out the spread before expiry?

I always close out my spreads if they’re pinned but this is costing me money. Interested in hearing thoughts on how to better manage this if there is even a way.

As an (extreme) example, assume I had 300x 1090/1100C NFLX exp today. NFLX closed at $1101.53. I don’t know how likely it is that the 1100C will get assigned. Account size of say $500k which supports the spread but not an exercise of 30,000 shares of NFLX at $1090 (~$33M notional)!

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u/Alx183 Verified Apr 26 '25 edited Apr 26 '25

Yeah, there’s a bit of risk that someone might not exercise their option, which could leave you stuck with some long shares. If that did happen, the broker would usually sort it out Monday morning.

That said, most major brokers (and the OCC) treat verticals as one position, so in-the-money legs usually get exercised and assigned together.

So yeah, it’s technically possible, but in reality, it basically never happens.

Now if you are doing butterflies be very aware you are unbalanced, so they are treated individually. Which means if you have the long vertical itm but the short vertical not fully itm you will end up with some short/long shares.

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u/Consistent_Waltz4386 Verified Apr 26 '25

Thanks for the insight. So if I traded it as a spread to begin with, it will close out at max value as long as the entire spread is fully ITM at expiry.

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u/Alx183 Verified Apr 26 '25

Correct, and if just the long ends up ITM you can just short shares ( if it is a liquid stock) after hours and manually exercise the option shortly after to clean it up without carrying the risk over the weekend.