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Imagine this setup:

Sell put strike $10

Buy put strike $9

At expiration, the price is at 9.5 which should cause you to be assigned but your bought put won't execute.

However, if you're doing this on a margin account, the capital required for this setup likely won't cover 100 shares, so what happens?

Real scenario:

Ticker: TSLA

 Expiration: Feb 12th 2021

 Sold Put: 800 for a 3.77 premium 

 Bought Put: 792.5 for a -3.14 premium

 Total capital required was $750

If assigned, the total required capital would be $80,000 minus the premium for 100 shares (which I definitely don't have in my account lol).

So what happens if the spot price is at $795 at expiration?

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    After over a decade here, I don't know what created that slider, but I just edited to view as a quote. – JTP - Apologise to Monica Feb 10 at 14:12
  • Thank you for the edit – Anthony Russell Feb 10 at 14:12
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First, a couple of terminology corrections.

At expiration, the price is at 9.5 which should cause you to be assigned but your call won't execute.

This is a put spread. There is no call option involved. Perhaps 'your call' refers to lacking sufficient capital to buy the assigned stock? If so, it needs a better explanation.

If assigned, the total required capital would be $80,000 minus the premium for 100 shares (which I definitely don't have in my account lol).

The capital required would be the strike price of $80 less the premium received for selling the credit spread.

Ticker: TSLA, Total capital required was $750

Re the TSLA vertical, the credit is 63 cents so the capital required is the difference in the strikes less the premium received or $687.


OK, you are assigned and you lack the margin to support the purchase of the shares. How this is handled depends on your broker.

Some brokers buy to close your short put late in the day at expiration (3:30 PM EST). This isn't favorable because they'll indiscriminately buy at the ask price. Working the order might get you a better fill. In addition, by closing early, this eliminates the possibility that the underlying might reverse and your loss is eliminated.

Other brokers will accept the assignment (buy shares), immediately sell the stock and hit you with an account violation.

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  • Can you please expand on what an account violation is and can you please expand on how the original money staked for this position plays into this scenario? – Anthony Russell Feb 10 at 14:59
  • If you don't have the margin to support an assignment, it's an account violation. For example, you have $500 in your account and you buy $80,000 worth of stock via assignment of your short put. – Bob Baerker Feb 10 at 15:05
  • But what does that really actually mean though. Do you lose the money you staked? Do you owe the broker $80,000? – Anthony Russell Feb 10 at 15:12
  • But what does that really actually mean though. Do you lose the money you staked? Do you owe the broker $80,000? Read the last two paragraphs of my answer again. As for P&L, if spot is $795 and you are assigned to buy shares at $800, you have a $5 loss on the spread less the 63 cent credit received for selling the spread. The total loss is $437. – Bob Baerker Feb 10 at 15:17
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    @AnthonyRussell Many options-traders consider it best-practice to never let near-the-money spreads go to expiration. Brokers risk-manage these positions for good reason. – Hart CO Feb 10 at 19:36

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