Hi Surjs,

Depending on the pricing when you entered the spread has certainly widened. Before I give you my take on a management plan I'd like to hear yours. Share with us what your plan was/is and I promise you I'll respond in kind. I know you had one.

You posed 3 good questions and I will address 1 of them here and the other 2 when I see your plan.

You asked "... If so does it automatically settle at expiry or do you close it by selling the long option and buying back the short one?"

Whenever you are doing spreads you put it on as a spread, you take it off as a spread. DO NOT EVER CLOSE THE LONG SIDE AND LEAVE THE SHORT SIDE OPEN. I MEAN IT ... NEVER, NEVER, NEVER EVER!!!. Sometimes it may be beneficial to buy back the short side of the spread and leave the long side on ... not often though ... this is usually an outcome of poor trade management ... sort of a last resort kinda' thing.

What happens at expiry depends on where we are price wise. Both out of the money? You messed up the management and they both expire worthless. Both in the money? You likewise in all probability messed up on the management. What will happen here is you will be assigned a long contract from the price corresponding to the strike price of the long call option. You will simultaneously be assigned a short contract at the price of the short call option side of the spread. The result ... you are long from 2.50 and short from 2.70, they offset, you pocket your 20 cents and you're done. Your profit is the 20 cents MINUS the original cost to put on the trade.

I will soon do another webinar on option spreads and cover the reasons for the above statements.