This is based on a US option trade, but just wondering if it happens here in our Commsecs and eTrades.
So here it goes:
About a month ago, I opened a bear call spread position on GOOG (google), anticipating a bear trend on the stock. The credit trade consisted of a short May 380 call, and a long May 390 call (for a credit of 5 points).
As the days went by closer to expiration date, the stock price rose against my bearish outlook.
However this didn't phase me, I already knew my max risk. By expiration the trade was out of the money, and I would have accepted my max loss of 5 points.
Then Monday came, and as it turns out, the stock closed on Friday @ EXACTLY 390.
This means that although the short call was exercised at 380, the long call I had expired worthless. I was now sitting on 100 short stocks!
To top that off, I was margin called during the weekend (how convenient), so my short shares were placed on market order, GOOG opened up this morning @ 394 ...
So there goes my max risk out the window. Went from 5 points to 9 points!
Had GOOG opened up at 400+.... I would have been in deep deep trouble.
So as it turns out, the long options that are supposed to cover our short options aren't so protective at all!
Anyone have any insight on this?