As an example, let’s say you open 1 RUT 590/600 bear call spreads rfor $1.10 credit, or for $110, and your risk capital is $1000 – $110 = $890. Let’s look at a few scenarios:

1) The RLS settlement number settles at 589; in this case you keep 100% of the premium that you collected, or $110. In general, if RLS comes in below 590, you keep 100% of the premium that you collected.

2) The RLS settles at 593; in this case your short 590 call expired 3 points ITM, so $300 will be debited (cash settled) out of your account over the weekend. However, you brought in $110 of credit, so your loss is $300 – $110 = $190

3) The RLS settles at 597; in this case your short 590 call expired 7 points ITM, so $700 will be debited (cash settled) out of your account over the weekend. Your loss is then $700 – $110 = $590

4) The RLS settles at 600 or higher; in this case your short 590 call expired 10 or more points ITM, and your long 600 call kicks in as protection capping your loss at $1000. As a result, $1000 will be debited (cash settled) out of your account over the weekend. Your loss is then $1000 – $110 = $890

If RUT closes < 590 by 1600 today or 1615 today doesnt that go out worthless ??

The MID, RUT and SPX indexes are classified as broad-based, cash settled indexes, and option contracts on these indexes are classified as European style and AM settled. The RUT is the symbol for the Russell 2000 small-cap index, the MID is the symbol for the S&P400 mid-cap index, and the SPX represents the S&P 500 big-cap index. Broad-based means that the index comprises 100s or even thousands of stocks. The RUT index comprises 2000 small-cap stocks, the MID index comprises 400 mid-cap stocks, and the SPX comprises 500 large cap stocks. Cash-settled means that when an option contract on the index expires or is exercised in-the-money (ITM), cash will be either deposited or withdrawn from your account. European-style means that option contracts on these indexes cease to trade on the 3rd Thursday of each month, and they can only be exercised on the last business day prior to expiration, which is the 3rd Friday of each month. AM settled means that the index’s final price will be calculated on the 3rd Friday of each month in the morning. The settlement price is calculated by recording the first opening sale price for each stock in the index, and then using these prices to calculate the settlement price. The settlement price is the final price of the index that is used to determine if option contracts on the index closed in or out-of-the-money. One can find the settlement prices at http://www.cboe.com/data/settlement.aspx. The settlement symbol for the RUT index is RLS, and the settlement symbol for the MID index is MIV.