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In my exmample here, I'm talking about SPX Weekly spreads.

Say on Thursday I open a bear call spread expiring in 1 day on a Friday.

Now it's Friday morning, it's expiring today, and SPX has gapped up higher than both my strikes.

What would happen if I roll the sold call leg to a higher strike expiring on Monday? Leaving the bought call as it is. This brings in significant premium, but leaves a position I don't really understand and not sure how to think through the outcome.

Thanks if anyone can explain in pretty simple terms.

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Some SPX options have AM expirations, so if your short call was an AM expiration you would not be able to roll it on Friday. Ignoring that, you'd have some amount of profit from your long call, and you'd be left with a naked call. A naked call is a short call not covered by shares owned (not applicable with SPX) or by another option. If SPX climbed beyond your new short strike you'd have to buy back the call before expiration or pay the difference between the strike price on the short call and whatever the settlement price is for SPX after expiration (x100), that less the premium received and accounting for any fees would be your loss on the trade. If SPX dropped your short call could expire worthless and you'd come out with a profit (the premium collected less any fees).

A naked call on SPX requires significant buying power, I'd wager you'd need about $70,000 in available buying power for a near-money short call.

Depending on your brokerage, what level of options you have enabled, and how much buying power you have available you might not be able to do what you propose. Whether your brokerage lets you or not, you should not trade undefined risk without a good bit of options experience.

There are a lot of good videos/websites out there teaching options trading, it's an area that really benefits from graphs and explanations stated in different ways, so I'd recommend exploring some of those. Note that a lot of people teaching options trading will focus on stock options, conceptually that will all be useful but also be sure you have a good understanding of how index options (like SPX) are different.

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  • I thank you for this great response in simple terms. I have a good intuitive sense around a lot of options matters (not all for sure), but when people start putting words on it like Implied Volatility and Theta, my brain shorts out. Being left with the naked call would NOT be the way to go. Instead I'd need to roll the long leg too. But that would, I think negate any premium gain, and so would be pointless.
    – Sandra
    Jul 16, 2022 at 12:59
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    @Sandra Yeah lots of concepts in play with options trading. Spreads that go ITM and are short-dated are typically not worth rolling. Naked options are more flexible, but have greater risk. The folks at Tasty Trade have a lot of videos about managing positions.
    – Hart CO
    Jul 16, 2022 at 15:39
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    @Sandra - As Hart-Co explained, you'd end up with a naked call. If your current vertical spread had more time remaining until expiration, there could be possible adjustments but in this case, few, if any that makes sense. It's a good rule of thumb that if you're going to defend such a position, do so before the short leg gets ITM. And rolling a position means realizing a gain/loss and opening a new position that supports your current outlook for the underlying. Jul 16, 2022 at 17:06
  • @Hart CO - Nice thorough explanation. I'm not sure what you mkean by 'naked options are more flexible.' In terms of the mechanics of rolling (order placement and fills), somewhat. But in terms of strategy, not really. Also, a spread isn't necessarily not worth rolling if it's just ITM, whereas if deep ITM, I'd agree. Jul 16, 2022 at 17:11
  • @BobBaerker Yes, I meant in terms of managing positions. ITM and short-dated spreads (OP is talking 1-3dte) are not likely to roll for much credit, but if you're just selling more time a naked option can almost always be rolled out for credit so long as it's not too deep ITM.
    – Hart CO
    Jul 16, 2022 at 17:25

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