Why Don T I Get Exercised On An In The Money Credit Spread – Reality Check

You can have the property or services immediately and pay later. If you pay the total balance due within a specified period of time this loan will be interest free.

A credit card can represent a godsend or a nightmare. Although much depends on how you use your card, there are a number of other considerations. What may be easily affordable today, may be way beyond your means in no time at all. Unemployment or a withdrawal of bonus payments, are prime examples of financial changes which could spell disaster for you and your family. One thing this Global Credit Crunch has taught most people is that it is best to have some cash to fall back on and as few debts as possible.

In the 21st Century, though, most western people own at least one credit card. Old and young alike appear to have embraced this spend today, pay tomorrow, mentality. Fine and dandy, the majority of the time, but overuse of your credit card or cards could be disastrous for your long term financial position.

Some Why Don T I Get Exercised On An In The Money Credit Spread Ideas

If you have existing balances on credit cards consider applying for one card, just for balance transfer purposes. As long as the opening offer is pertinent to your needs, this could solve many of your credit problems.You may have to pay a balance transfer fee but, in the long term, this will likely be much cheaper than the charges being applied monthly to your existing cards.

Exercise caution with this new card though. If you use this card for new purchases, you could see that the special offer applicable when you took out this new card, won’t apply to new purchases. If you’re not careful you could end up in more financial trouble. It would be far better to keep one existing card for emergencies and simply use the new card for balance transfers.

Please drop me a line at fergus@bbc.co.uk with your questions. You can also read more on money and consumer issues on my own blog. One of the most common comments that you hear people making about budgeting, and the one thing that puts people off the idea of ever doing one, is that it is about not spending money – but that is simply not true. A budget, at its simplest level, is about knowing how you spend money. And knowledge …


With the Holiday Season approaching we’re all more likely to spend a little extra money than we should. A good credit card, used sensibly, can help you spread the cost of Christmas. The trouble is such a card may likewise, in effect, invite you to make those extra, expensive purchases. Those that really you cannot afford.

Think very carefully about your relationship with your credit card and its provider and reassess the situation if necessary.

It could be that now’s the right time to ask for a balance transfer credit card, in order to finally pay off all of your debts. Then again it may be more appropriate to simply destroy all your credit cards to avoid further use.

If you find that you’re unable to make the payments, for your cards, don’t simply ignore the situation. Ignoring the problem won’t make it go away but will probably make it worse. Contact your card provider and see if you are able to make a set payment agreement. If you have no luck with the card provider speak to the Citizen’s Advice Bureau, or similar, for accurate advice about whatever you can do.

Remember that if you’re not careful you could still be paying for Christmas 2009 as Christmas 2010 approaches, or even further into the future.

QUESTION: ITM vs OTM option credit spread?
I am aware of the mechanism for out of money credit spread. Can some one explain how the in-the-money credit spread works ? Example- BG last 52.25 BGWOK 55 Mar-09 – P – (Long) BGWOL 60 Mar-09 – P – (Short) ITM credit 4.1 1.Do you not hold the credit spread till expiration like the OTM credit spread ? 2.Since short leg is ITM , if you wrote the spread and next day you get called – how is your profit / loss calculated ? 3.Comparison between OTM & ITM spread in terms of A. risk B. return Thanks As always thank you zman ! Well here is interesting perspective- ITM spread is like random lottrey pick. It is dependent on the random selection procedure between OCC & Brokerage and Brokerage & Investor. Did I get that partly right .. does anyone else agree ?

  • <<<Can some one explain how the in-the-money credit spread works ?>>> With an OTM credit spread you are betting the stock will be less volatile than the implied volatility. You do not want the stock to move past either strike price. You want both legs to remain OTM. With an ITM credit spread you are betting the stock will be more volatile than the implied volatility. You want the stock to move past both strike prices so both options become OTM and you get to keep the entire credit you received when you opened the spread. <<<1. Do you not hold the credit spread till expiration like the OTM credit spread ?>>> You may not have that choice. If there is not any extrinsic value (time premium) left in the short leg may be assigned early. <<<2. Since short leg is ITM , if you wrote the spread and next day you get called – how is your profit / loss calculated ?>>> I assume when you say "you get called" you mean you get assigned. (Since your example is put options there is no way to be "called".) You calculate your profit / loss the same way you would for any other position. Once all the legs are closed you add up all the credits you received and then subtract all the debits you paid. Example (ignoring comissions): Assming you are assigned on the short leg and exercise the long leg you have a $410 credit for selling the spread plus a $5,500 credit for selling the stock equals a total credit of $5,910 fron which you subtract a $6,000 debit for buying the stock giving you a $90 loss. Second example: This time assume the stock is at $56 per share when you are assigned and you sell the stock on the open market for $56 per share and sell the long option leg for $0.35 per share: a $410 credit for selling the spread plus a $5,600 credit for selling the stock plus a $35 credit for selling the option equals a total credit of $6,045 fron which you subtract a $6,000 debit for buying the stock giving you a $45 profit. Of course what you want to happen is for the stock to shoot up to over $60 and have all the options expire so your entire $410 credit from opening the position is profit. <<<3. Comparison between OTM & ITM spread in terms of A. risk B. return>>> An OTM spread will be profitable more often but the maximum loss possible is usually higher. An ITM spread will be profitable less often buy usually has a smaller maximum loss and a higher maximum profit possible. —— I noticed another answer indicated "Very Important! If the stock is trading near the strikes 55 or 60 on expiration make sure you inform your broker to unwind before the close of trading on that day." I cannot agree with that statement. With an ITM spread, particuarly an ITM put spread, it is quite possible to be assigned well before expiration. In my opinion if you are afraid of being assigned you should not be selling ITM spreads.

  • 1. You can hold it til expiration or you can choose to exit early just like OTM 2. If you sold the spread and say you got $2 for doing so your max gain is $2 your max loss is $3. 3. A. An ITM spread has a much higher risk then an OTM spread because the stock needs to move in your direction in order for you to make money. With an OTM spread you realize your full profit as long as the stock stays above the strike price you sold. With ITM it has to move above the strike price you sold to profit. B. Your return Per trade is potentially greater with an ITM spread but that is because the risk is higher. Personally I don't like ITM spread options because they give you a much lower probability of success. And that is the whole reason credit spreads looks appatising to begain with is the high probability.

  • 1. you can close it if the profit is enough. 2. you have long stock position. 3. itm credit spread has higher risk and return.