At present, we’re going to take a look at an instance of a failed bull put credit score unfold commerce.
The truth is, the dealer awakened Friday morning to see that he was assigned 100 shares of Tesla, although it was not on the expiration of his possibility.
This is named an early project.
Let’s see what occurred and the right way to get out of this mess.
Contents
The dealer entered a bull put credit score unfold on June 24, 2025, as a result of Tesla (TSLA) broke out of a pendant chart sample with a powerful bullish inexperienced candle the day earlier than…
The bull put credit score unfold consists of promoting the $350 strike put possibility.
That is the choice that he’s brief, often known as the brief strike.
And it consists of shopping for the $345 strike put choice to restrict the potential loss.
That is the lengthy strike.
Date: June 24, 2025
Value: TSLA @ $341.85
Promote to open one July 18 TSLA $350 put @ $23.73Buy to open one July 18 TSLA $345 put @ $20.98
Credit score: $275
Each choices expire on July 18, and the P&L graph at expiration seems like this…
Not like typical credit score spreads which might be positioned far out-of-the-money, this put credit score unfold is positioned at-the-money, proper the place TSLA’s present value is.
When it’s positioned this near the cash, the unfold behaves like a bull name debit unfold. The chance graphs of the 2 seems would look the identical.
The aim of this at-the-money credit score unfold is to not acquire credit score and revenue from time decay however reasonably a directional wager on the upward motion of TSLA inventory.
That is evidenced by the very low theta (0.39) and the numerous constructive delta of 4.09.
We are able to see from the upward-sloping T+0 line that the revenue of the unfold will increase as the value of TSLA will increase to the correct alongside the horizontal axis.
On July 1, TSLA dropped to $300.
Oops, the inventory is shifting within the flawed course.
That is additionally a failed breakout sample.
The sample broke out to the upside, which is the thesis of the commerce.
However now the inventory is beneath the pendant sample.
This invalidates the sample.
The bull put credit score unfold is at a lack of -$172:
As a result of the unfold is a defined-risk commerce and the dealer couldn’t lose greater than $225, the dealer most likely thought the inventory would possibly bounce again and proceed to carry the unfold.
Max potential loss = width of unfold – credit score acquired = $500 – $275 = $225
Pattern Iron Condor Buying and selling Plan
The morning of Friday, July 18, is expiration day.
Whereas some expiration dates are AM expirations the place settlement is on the morning of the day of expiration, this was not one in every of them.
This Friday, July 18, is an everyday PM expiration, which implies that the bull put credit score unfold is because of expire on the finish of the buying and selling day.
Nevertheless, when the dealer checked his account one hour after the market opened, he noticed that he had 100 shares of TSLA inventory that he didn’t have earlier than.
Moreover, he noticed that he not had the brief put possibility.
The July 18 TSLA $350 put that he had shorted (initially bought) was not in his account.
The dealer realized that his brief put possibility was assigned.
Since this was technically not on the expiration of the brief possibility, it meant that he was early-assigned.
This meant that somebody on the opposite aspect of the commerce, who’s holding the lengthy July 18 TSLA $350 put contract, determined to train that contract.
To train this put contract means to train the correct to promote 100 shares of TSLA on the strike value of $350.
The counterparty should have wished to unload 100 shares of their TSLA inventory for any variety of causes — one in every of which may be that TSLA is asserting earnings the approaching week.
As a result of the value of TSLA was round $326 on the time, promoting at $350 is an efficient deal.
The $350-strike put possibility is taken into account “in-the-money” as a result of it has intrinsic worth (the one that workout routines it could revenue).
In any case, if this put possibility continues to be in-the-money at expiration on the finish of the buying and selling day (which it probably would), the brokers would have robotically exercised this feature of the counterparty.
Because the counterparty bought the 100 shares, somebody needed to take these 100 shares. Our dealer was the holder of the brief put of that contract.
Our dealer needed to take (or purchase) these 100 shares at a value of $350 per share.
That could be a value of $35,000 to purchase these shares.
Effectively, if the account dimension is giant sufficient and the dealer doesn’t thoughts proudly owning 100 shares of TSLA, he can proceed to simply maintain TSLA inventory.
But when the account dimension is barely $50,000, then these 100 shares of TSLA characterize a excessive directional threat and an outsized allocation of the account to 1 inventory.
Happily, the dealer nonetheless has an extended $345-strike put possibility that permits him to promote these 100 shares at $345 per share if he decides to train this put possibility.
The put possibility is about to run out on the finish of the buying and selling session.
He can name his dealer to train the put possibility now.
Or if TSLA remains to be beneath $345 on the time of expiration, his dealer will auto-exercise that put possibility for him at expiration.
Both approach, he finally ends up promoting his 100 shares at $345. Having purchased at $350 and bought at $345, he loses $5 per share.
Misplaced $500 general, however partially offset by the $275 credit score that he acquired initially in the beginning of the commerce.
Subsequently, his internet loss is -$500 + $275, or -$225, which is the max threat of the credit score unfold (as calculated beforehand).
There’s one other approach he can deal with it.
No have to name his dealer.
No want to attend for expiration. Clear up this mess straight away.
He sells his 100 shares of TSLA straight away on the market value of $326.30.
Then he sells his lengthy $345 put possibility, fetching a value of $19.50 (on a per share foundation), or a internet value of $1950 for one contract.
Preliminary credit score from bull put unfold: $275
Assigned 100 shares at $350 per share: -$35,000Sold 100 shares at $326.30 per share: $32,630Selling this lengthy put possibility: $1,950
Internet P&L: -$145
This loss is lower than the utmost potential loss.
Both the place was not at max loss on the time, or it may very well be that TSLA moved favorably after the project.
Observe that it’s doable to promote the 100 shares and the lengthy put in a single transaction. As a result of one is a hedge for the opposite, it’s supreme to promote them each about the identical time.
Credit score spreads are defined-risk trades.
So they’re appropriate for starting choices merchants.
For those who commerce sufficient of them, you would possibly encounter a scenario the place shares of inventory are assigned early.
However that’s not something scary if you understand what to do and the right way to deal with early assignments.
The outlined max threat of the credit score unfold continues to carry true as much as the purpose of expiration, even when you’ve got been assigned early — so long as you handle it correctly.
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We hope you loved this text exhibiting an instance of a bull credit score unfold project.
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Disclaimer: The knowledge above is for instructional functions solely and shouldn’t be handled as funding recommendation. The technique offered wouldn’t be appropriate for traders who usually are not conversant in change traded choices. Any readers on this technique ought to do their very own analysis and search recommendation from a licensed monetary adviser.
