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+Chapter 7: Bull Spreads 
+FOLLOW-UP ACTION 
+179 
+Since the strategy has both limited profit and limited risk, it is not mandatory for the 
+spreader to take any follow-up action prior to expiration. If the underlying stock 
+advances substantially, the spreader should watch the time value premium in the 
+short call closely in order to close the spread if it appears that there is a possibility of 
+assignment. This possibility would increase substantially if the time value premium 
+disappeared from the short call. If the stock falls, the trader may want to close the 
+spread in order to limit his losses even further. 
+When the spread is closed, the order should also be entered as a spread trans­
+action. If the underlying stock has moved up in price, the order to liquidate would 
+be a credit spread involving two closing transactions. The maximum credit that can 
+be recovered from a bull spread is an amount equal to the difference between the 
+striking prices. In the previous example, if XYZ were above 35 at expiration, one 
+might enter an order to liquidate the spread as follows: Buy the October 35 (it is 
+common practice to specify the buy side of a spread first when placing an order); 
+sell the October 30 at a 5-point credit. In reality, because of the difference between 
+bids and offers, it is quite difficult to obtain the entire 5-point credit even if expira­
+tion is quite near. Generally, one might ask for a 4¼ or 47/s credit. It is possible to 
+close the spread via exercise, although this method is normally advisable only for 
+traders who pay little or no commissions. If the short side of a spread is assigned, 
+the spreader may satisfy the assignment notice by exercising the long side of his 
+spread. There is no margin required to do so, but there are stock commissions 
+involved. Since these stock commissions to a public customer would be substantial­
+ly larger than the option commissions involved in closing the spread by liquidating 
+the options, it is recommended that the public customer attempt to liquidate rather 
+than exercise. 
+A minor point should be made here. Since the amount of commissions paid to 
+liquidate the spread would be larger if higher call prices are involved, the actual net 
+maximum profit point for a bull spread is for the stock to be exactly at the higher 
+striking price at expiration. If the stock exceeds the higher striking price by a great 
+deal, the gross profit will be the same (it was demonstrated earlier that this gross 
+profit is the same anywhere above the higher strike at expiration), but the net profit 
+will be slightly smaller, since the investor will pay more in commissions to liquidate 
+the spread. 
+Some spreaders prefer to buy back the short call if the underlying stock drops 
+in price, in order to lock in the profit on the short side. They will then hold the long 
+call in hopes of a rise in price by the underlying stock, in order to make the long side 
+of the spread profitable as well. This amounts to "legging" out of the spread, although