what happenes when both strikes of credit spread (half of iron condor) expires in the money?
Not only they are both in the money, the price went way past the long strike. I understand it means maximum loss. I would like to know how it happens. Options expired Jan18, and now I see in my account that they are both executed, and I have a margin call. What happens now? Is there anything I have to do, or can do? I think in hindsight one thing I could have tried is selling the short strike and keeping the long, and as the price went way below, I might have decreased the loss considerably or even some profit. Trade and learn, I guess.
Answers
244 points
KenLong answered one year ago …
A hard lesson. Nothing you can do now. As long as you have enough funds to cover your losses the margin shouldnt be a concern.
Covering the short option and holding the long is a nice idea if it works. The problem is predicting whats going to happen next. Will the stock continue to move in the same direction or will it turn around?
I think you would have been better off to close the entire trade at a prearranged stop point. This is something that needs to be determined before the trade is opened. Then depending on the style of trade, you should be able to just check the chart at the end of day and decide if any action is needed.
314 points
Ifly answered one year ago …
Assuming you missed the time to adjust this trade prior to expiry, or you were exersized early: Yes your short options would be turned into short stock (assuming you had Calls) and you would have a margin call. However the broker will immediately exersize your long options (assuming they are ITM) to balance it out and you would be left with the loss equal to the difference in the strike prices minus the original credit you received. This is the maximum risk in the trade.
eg If it was a 10pt spread and you got a $3 credit your loss would be $1000-$300=$700 per contract.
The things you could have done prior to this are roll the whole position out 1 month for an extra credit, but then use the credit to move the strikes further away from the action. Do this only if you think the stock will recover and all you need is extra time. If this is not the case then the usual practice is to close the trade when the stock reaches your sold strikes. Accept the loss and move on.
Cheers
Ifly
