If I sell an option spread (e.g. put spread) and I am willing to let it expire, can there be situations before expiry where my loss on the spread becomes much higher than the spread distance? In other words can there be situations where the broker’s RMS kicks-in and squares-off the positions at a loss that is much higher than spread strike distance. I want to know about scenarios even if they might be extremely low probability.
I can think of two scenarios:
(1) The market price for the strikes in the spread can diverge significantly where I can be in much larger loss than the spread distance. In that case the broker’s RMS may kick-in and square-off my positions. This could be very low probability but can happen if the strikes become illiquid. Is this scenario possible, or I can always let the spread expire?
(2) The margin requirement increase based on the exchange requirements. Is this scenario possible? Can this become significantly higher than than the spread.