Zach, At the start with credit spreads, I usually use a 50% allocation. In other words, I take the maximum risk and put 50% of that into the spread and hold 50% back. If the thing moves my way quickly and I can butterfly it, I put the entire amount in.
I have never been assigned on my credit spreads. I think that is the most likely scenario given the far out in time nature, but I do expect to someday be assigned. In general, I take these things off when they still have many months until expiration.
With a Leap spread, if you are wrong and are exercised, leaving you either long or short stock you don't want, the odds are pretty good that your long position in also near parity and you just exercise your way out of the position. I am certain there are exceptions, but I sure don't watch closely for their occurence. But, as I've said, I am not holding these things during expiration week and not even during expiration month. Remember, I am using very volatile securities. In two years, they will have moved. |
