Hey guys, I want to trade spy options and want to get some info on the same. Suppose I hold a 550 put (current price 553) and by the time 3.30 pm, my 550 put go itm and I've to exit my position before 4 pm to avoid assignment. Now the spread for my itm put shows 6.75-6.98 which is a 24 cent wide spread. Now if I exit my position at Market, it'll exit at 6.98 and it'll be a 24 cent loss straightaway. I wanted to ask is there any efficient exit strategy by which I can reduce this spread??? I just want to exit my position to avoid getting assigned. Pls let me know if we can reduce the spread by breaking out order or by any other way. Thanks
Posted by Separate-Dealer3979
1 Comment
FYI – SPY options stop trading at 4:15 pm ET (and the longs can exercise/lapse until 5:30 pm ET), even though the OCC fixes the settlement price at around 4pm ET.
You could instead create a diagonal/calendar spread to move your risk to a later expiration and hopefully get a break on the spread.
Or even just a plain old limit or stop limit order could be good enough (you’ll still likely get screwed a bit, but it may be a good combination of easy and economic)
You might also be able to sell a new covered put spread (sell shares and sell later-dated put in one order) (possibly appearing to be short SPY shares, but the SPY sale portion would be closed/netted by the put assignment) so that your sold shares are replaced by the new shares you get assigned
All of your choices are not great because of the short gamma exposure, though (it will be difficult or impossible to tell whether the short put will become +100 shares or +0 shares)
Also SPY is liquid enough where you can usually treat the midpoint as a reasonable price (so you’re looing at a loss of 12-13 cents by hitting the ask above mid). However expiration is a good time to trap shorts, so midpoint may not be the best or most fair price.