Spread trades

Although spreads are attractive as a means of limiting options exposure, there are potential pitfalls. If one leg is assigned without there being an opportunity to exercise or liquidate the other, this can create delivery and settlement problems. Or it may happen that it is difficult to close out both legs at the same time; if, for example, just the long leg is closed, the short will be left unhedged. Moreover, the bid and offer spreads prevailing at the time the spread was entered into may be less favourable by the time you want to liquidate and so the strategy may be less effective than you had expected.
Finally, the dealing costs associated with trading options may make impractical a spread strategy that looks attractive in the textbook. Many strategies are not effective when the investor is paying all the dealing costs at the full rate or is only able to buy at the best offer and sell at the best bid.