🚨 I’ll be live at 10 a.m. ET with Graham Lindman🚨
We’ll cover a few tradable earnings reports this week, the bottom potentially being in as extreme fear subsides and more [tap to join us for Opening Playbook]
We talk a lot about spreads as binary trades — above the line you win, below the line you lose. Clean, simple and easy to understand.
But there’s one area that trips people up more than anything else: What happens when your spread expires between the two strikes. Most traders don’t think about this until it happens to them, and when it does, it’s confusing, frustrating and sometimes expensive.
So let’s fix that right now.
The Partial Value Zone
When you trade a spread, there’s a middle zone between your two strike prices that represents partial value. One leg finishes in-the-money (ITM) and the other finishes out-of-the-money (OTM). ITM simply means the option has intrinsic value and can be exercised, while OTM means it expires worthless.
For example, say you bought a $49-$50 call spread on the Financial Sector ETF (XLF) for a Jan. 16 expiration. If XLF closes between $49 and $49.99 at 4 p.m. ET on expiration day, you’ve got a problem.
The $49 call is ITM but the $50 call expires OTM. That leaves you assigned on shares at $49 with no short call protecting you.
You’re now holding shares with no hedge, and you can’t do anything about it until Monday’s open. If the stock is at $49.50 at assignment, you have partial value, but after-hours movement can flip that outcome completely.
Before we move on, it helps to remember how spreads are structured. If you trade a $116-$117 call spread, you know immediately the most it can ever be worth is $1 because that’s the width of the spread. Subtract what you paid from $1, and that’s your max profit.
Understanding that built-in max value makes it easier to decide whether closing a trade early is worth it.
How to Avoid the Assignment Lottery
The good news? This is extremely easy to avoid.
Check your positions between 3 and 4 p.m. ET on expiration day. If your spread is anywhere near either strike, just close it.
You’ll usually be close to breakeven — maybe a small gain or small loss — but you’ll avoid assignment risk completely.
If you have a resting limit order, cancel it and replace it with a market order. Or call your broker and have them close it for you. They handle this stuff all the time.
One more note: If you’re trading Mini S&P 500 Index Options (XSP) or S&P 500 Index Options (SPX), they’re cash-settled, so you don’t face assignment risk at all.
And while early assignment isn’t common, when it happens on a debit spread before expiration, it’s actually the best-case scenario. You’ve already locked in the intrinsic value and the remaining leg can often be closed for a benefit.
The bottom line? Don’t let a winning trade turn into an assignment headache. A simple end-of-day check saves you from the lottery.
Now don’t forget to join us at 10 a.m. ET weekdays for Opening Playbook, and at 3:30 p.m. ET Closing Playbook!
Nate Tucci
Tucci Trades
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. Why I’m skipping Nvidia, Amazon and Tesla
This might sound counterintuitive…
But if I were starting from scratch today with just $10,000 to invest…
I probably wouldn’t buy Tesla for robotics
I wouldn’t choose Amazon for e-commerce
I definitely wouldn’t make Nvidia (NVDA) my main AI bet
Not because those companies are bad. In fact, they’re incredible businesses.
But if you’re starting with a smaller account, the goal usually isn’t stability — it’s growth.
With only $10K to work with, I’d be looking for companies that have a real shot at doubling, maybe even more, over the next 12 months.
And while the robotics, e-commerce and AI sectors are exactly where I’d focus, the names I’d target would be very different from the obvious giants everyone already knows.
Of course, nothing in the market comes with guarantees.
But if I were building a portfolio from the ground up today, the stocks on my list would look nothing like the mainstream picks you hear about on TV.
In fact, I recently revealed this “Buy This … Sell That” watchlist live, including the names and the research behind them.
If you missed the session, the good news is you can still access it completely free today…
