Options Academy
Bull Spreads 104: Execution & Management
Entering a spread is easy, but getting out can be tricky. Learn why you should never "leg in" and how to close the trade without leaving money on the table.
Execution Rule #1: Net Debit Orders
Never "leg in" to a spread. Legging in means buying the call first, waiting for the stock to rise, and then selling the higher strike call.
This is gambling, not spreading. If the stock drops after you buy the call, you are stuck with a loss and no hedge.
Always enter the trade as a Multi-Leg Strategy using a "Net Debit" limit order. This guarantees your max cost and pricing structure.
Closing the Trade
To close a Bull Spread, you do the reverse: You Sell the spread.
This means you Sell your Long Call and Buy back your Short Call in one transaction. This is a "Net Credit" order.
Don't wait for expiration if you have 90% of your max profit. Close it early. The last 10% of profit often takes too much time and risk to capture (Gamma risk).
The Assignment Danger
Watch your short leg! If your short call is ITM and has very little time value remaining (e.g., $0.05), you are at risk of early assignment.
If you get assigned on the short leg, you will be short 100 shares of stock. You can cover this by exercising your long call, but it's messy.
Best Practice: Close the spread before expiration week to avoid assignment headaches.
Key takeaways
- Always use Net Debit orders; never leg in.
- Close the trade as a spread (Net Credit).
- Take profit at 80-90% of max potential.
- Beware of early assignment on the short leg if time value disappears.
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