If call calendar ends up ITM at expiration, do you end up short the stock (in IRA)?
If I have a call calendar or diagonal with near term short call and longer term long call and the near term call ends up ITM at expiration, do I actually end up short the stock (covered by the long call) even though it is an IRA account (cash margin)? That is what my broker said, but not sure if they noticed that it was an IRA.
I know that I cannot normally short stock or sell naked calls, but I am approved to do any options trades with defined risk. And technically being shorted the stock while still owning the long call would be defined risk, since I could always buy the stock at the strike price of the long call. Although, I imagine that if I did not do something by the time the long call expired they would exercise the long call to close out the short stock.
- Warren534Lv 64 years agoFavorite Answer
You would be short the stock, but you may be forced to cover it immediately.
Your goal should be to prevent this from happening in the first place. Make sure to cover or roll the short call before expiration, and even earlier if the extrinsic value is gone, say in the case of a pending dividend payment on the stock.Source(s): 30 years trading options and futures, Series 3 and former CTA