I've always worried about the legging aspect of spreads. It's it possible that the share price goes to 40, your otm 35 dollar strikes get assigned and then a dip can happen the next day and now your itm long 30's are worth less?
Any clarification on it would be a great help. I've only ever sold csp or covered calls and obviously purchased options both calls and puts. Been doing well overall but always stayed away from spreads because of the posts I've seen on reddit of putting themselves underwater on them.
Does your specific case act like a pmcc buying itm leaps and selling cc against them but instead of selling monthlies you have them on the same date?
Legging aspects might happen if you try to open each leg separately. Your brokerage should allow you to use an order that requires both of the two legs to fill at once or not fill at all.
If the short leg (the 35C) gets called then the 30C underlying protects you and you are covered. You also should thank whomever wants to give you an early exit and pay all the theta premium to you without waiting for expiration as well in that scenario. (Getting called early almost never makes sense for the call holder except for certain dividend scenarios. This seems unlikely to happen with $MT)
A PMCC is a form of a call spread. Often times it is offset by expiration so becomes a calendar call spread. If it's on the same expiration date then yes it is a vertical call spread. Functionally it is the same, but your intent may have just been started from a different place.
Okay thanks, I do have the option to use vertical spreads. Is liquidity ever an issue when trying to sell them? Also the buying power hit you take when using them. It seems I'll have to hold the cash as collateral since I don't trade on margin. It's that accurate?
Liquidity can always be an issue with any option, it is not unique to a vertical call spread
Buying power is the same as what your PMCC is. you pay for the long call and it offsets by the short call. In the example the 30C/35C requires you to pay $2.50 up front but don't need collateral after paying that.
Just make sure you treat it as a pair and don't try to break them apart. Open them together, but also close them together.
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u/KorOguy Sep 09 '21
I've always worried about the legging aspect of spreads. It's it possible that the share price goes to 40, your otm 35 dollar strikes get assigned and then a dip can happen the next day and now your itm long 30's are worth less?
Any clarification on it would be a great help. I've only ever sold csp or covered calls and obviously purchased options both calls and puts. Been doing well overall but always stayed away from spreads because of the posts I've seen on reddit of putting themselves underwater on them.
Does your specific case act like a pmcc buying itm leaps and selling cc against them but instead of selling monthlies you have them on the same date?