The Real Truth About Debit Spreads, Dividends, and Bullish Bias
One of the most common questions I get about debit spreads is, “What happens if I get assigned early?”
And I get it — the idea of someone exercising your short call and leaving you short stock sounds intimidating, especially if you’re newer to spreads.
But here’s the thing: early assignment is rare, and even when it happens, it’s actually a good thing.
Let’s say you’ve got a $495/$500 call spread. You bought the $495 call and sold the $500 call. If someone exercises that $500 call early — maybe right before a dividend — you get assigned and go short 100 shares at $500.
Now you just exercise your $495 call, which buys those shares at $495. So you’re selling at $500, buying at $495, and locking in the max profit on the spread.
That’s the key.
If you get assigned early, it only happens when your spread is already in-the-money — which means you’re sitting on a full win.
The only time it gets slightly annoying is if there’s a dividend involved. If your short call gets exercised the day before the ex-dividend date, you might owe the dividend. But again, you’re already max profitable on the spread, so all you’re doing is giving back a little of that profit.
Personally, that’s a trade-off I’ll take all day. If someone wants to hand me a win, I’m not going to argue.
That ties right into a bigger reason I trade the way I do: I lean bullish by default.
Not because I’m blindly optimistic, but because the data says the market goes up more than it goes down. Over time, that’s the single biggest edge a trader can bake into their strategy — and I want to be on the right side of that edge.
That doesn’t mean every trade has to be aggressively bullish. A lot of the spreads I trade just need the stock to stay flat or drift up slightly (and with the Income Machine a stock can often go down and still give me a win).
But I start with the assumption that the path of least resistance is up. And if I can stack other edges on top of that, even better.
Of course, I specifically identify stocks that meet rigorous bullish criteria so that my bullish bias is strengthened.
And, don’t worry, the Income Machine ranks all those criteria automatically.
It filters thousands of spread combinations and ranks them based on factors like short-term and long-term trend, momentum, room for error, and ROI potential — all while assuming we want to be bullish by default.
You get a ranked list of stocks and then you can “choose your own adventure” with different risk profiles…
Then the machine spits out exact trade details for how to set up the trade if you want.
And it even shows you the risk to reward and expected winning scenarios.
It’s hands down the coolest thing I have ever built and whether you want to try it (for free) or not, I hope the concept of trading this way makes sense to you!
— Nate Tucci
P.S. See setups like this and much more every weekday at 10am ET in the Opening Playbook. Don’t miss it!
