gts just explain it to me if you have time. I paid for the option to sell 1000 shares at 3.00 Obviously I am missing something that you know. PS I have realised that I should have determined the difficulty of borrowing the stock first.
You said: A person who sold naked puts and did not cover before expiration would be assigned 1000 shares of FORD for $3/sh at a time when it was trading much less than that - an instant loss for him, so your statement implying he pocketed the put premiums without any offsetting loss is incorrect. The part you wrote about him not selling 1000 shares of FORD when you exercised is nonsensical.
I do not know how we can determine he wrote naked puts. The option writer may have owned those shares. According to ameritrade there is no way to determine who wrote the puts I bought.
It doesn't matter, if he wasn't naked that means he had a short Ford position and when that short position was closed by the option exercise the net effect is the same (in terms of what it cost him) Of course there is no way for you to determine who wrote the puts nor is there any reason to. It has no impact on your side of the transaction.
gts, thanks for the info. I obviously am missing something. Maybe I am only seeing it from my view. I just can't help but feel there is a problem when I paid X dollars for the right to sell a stock. Then am told I cant sell the stock. If I can't sell the stock, ok I am cool with that. Just give me back the money I paid for the right to sell.
Read this again and try to understand the difference: If you had held on to your 1000 share long stock position then you would have been fine - they would have closed your position out, and given you $3 per share. You can't fault Ameritrade for what you decided to do. Its not like they are going to ask you when you place your put buy order what your intentions are - seriously trying to lay the blame off on anyone but yourself is ludicrous. Considering the price of Ford when you bought your puts and where it was at expiration I really don't see why you think you got the short end of the stick. Next time close your option position before expiration.
Sorry about what happened to you. I have found myself in a similar situation with Interactive Brokers several times, flushed out ofa short position prematurely. Well, after the fact one time it wound up a blessing in disguise because the stock continued to rise. Let's just say that Ford at $3 doesn't have a lot of downside potential so just chalk it up as market tuition! Nevermind this guy GTS, he is useless. Another troll trying to pump up his flaccid ego by telling someone else how wrong and mistaken they are. You have been polite and patient with him but I will tell him instead - GTS, you are an asshole!
You can sell the stock. You just can't stay short it naked. There is no inherent right to stay short - you don't own anything, you are simply given the privilege of being lent stock for as long as the stock is available to lend. The lender, as owner of the shares, has the right to call in the stock loan at *any time*, which then obliges you to buy back immediately at whatever price the market offers. The law currently prohibits naked shorting, so not only do you have no right to be short, it is actually a criminal offense to be short without a loan. As an owner of in-the-money puts, with no long position in the stock, you effectively bought the right to go short at expiration below $3. To exercise this right to sell and convert into a short position, you have a legal obligation to locate stock for loan in order to avoid being short naked (criminal offence). You did not locate any short stock on loan, nor did your broker, therefore to keep in compliance your broker has to buy you in. Next time do not exercise puts if you are not long equivalent amounts of stock or cannot locate equivalent amount of stock to borrow and maintain the resulting short position. Hope that clears things up.