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Holding a deep-in-the-money (DITM) debit spread as options expiration approaches always generates inquiries from subscribers as to whether or not the debit spread should be closed prior to expiration.
Think of a DITM debit spread like a far-out-of-the-money (FOTM) credit spread, there is nothing to do on your part at expiration. Simply let the spread, debit or credit, go through the expiration process and let the Broker do the work. Less work and more profit - that is what I am talking about!......Let me explain why:
If the entire debit spread (both legs/strikes) is DITM then it can be held through expiration and is not required to be closed prior to. If both spread strikes (the long and short strikes) are DITM at expiration, your Broker will actually assign and exercise both strikes on your behalf since they are both ITM; most Brokers automatically exercise/assgn any option that is $0.01 ITM.
A benefit to allowing expiration/assignment is that the full spread width will be realized, thereby providing maximum profit for the position. For instance, if the debit spread was $2 wide, the trade would be closed for the full $2.00 through the expiration/assignment process. This is potentially a higher value than may be available through manual closing of closing the position for a lesser credit of $1.98, $1.95, or whatever price may be required to trigger the closing trade.
No special instructions or communication needs to take place with your Broker either. Both legs/strikes of the debit spread will be automatically liquidated since they are ITM and you will receive the full spread value in your account upon settlement.
Regardless of if the debit spread is held in a conventional brokerage account or a retirement account, it makes no difference, the same expiration/assignment rules apply.
Navigate wisely and stay profitable, my friends. Happy trading!
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