Exiting a Long Spread Early | Options Portfolio Management

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Exiting a Long Spread Early

Monday, 11 August 2008 14:04

A few days ago I published an article demonstrating how to enter a long put spread on GOOG. You can find that article here. The most common question I get back from readers about vertical spreads is how and when to get out. Traders frequently assume that they cannot exit a spread early but that is not true. In fact, like most other trades if your analysis changes you can exit a position for its current gain or loss at your convenience anytime before expiration.

In today's video I will show you how a long put spread can be exited on GOOG early. The process consists of reversing the previous trade. In this case that means that you are closing the long put by selling the 490 strike price and closing the short position by buying the 480 strike price. When closing a trade like this you will be paid a credit. That credit partially offsets the cost of entering the position originally. The difference between what you pay for a long spread and what you sell it for when exiting early are the losses or profits from the trade.

What are your questions about exiting a spread trade? Let us know in the forums.