I sold Deep deep deep in the money puts

Discussion in 'Options' started by noob_trad3r, Mar 23, 2010.

  1. On LLY the last few days. (Jan 2012 strike 40)

    Hopefully it stays under 40 in 2012 and I get assigned.
  2. WHat was the point on selling those vs the call?
  3. There are easier, more reliable ways to make money with option trading than that.
  4. Because I would like to own the stock and collect the dividends upfront today as well as the time premium. VS the call which I would have to outlay money,timepremium etc upfront..

    I like the risk profile better on the DDDITM put and if I do not get the stock if LLY goes over 40 at least I was compensated for the effort and a good return.
  5. I am not doing this as an option trade, I just want to own stock at a discount and it is like buying the stock on Layaway. (I do not want to sell other stock for money to buy LLY or borrow on margin and pay interest on it either) but over time I can deposit more money to cover the naked put into a covered put (8 months worth of deposits)

    I am getting LLY for less than 32 a share equivalent. if I do not get the stock I earned a bit over 10% annually in 24 months.

    I guess it is a synthetic long equity covered call position. without margin interest.
  6. K, let's see. LLY is at $36.61 right now. The 40 Put Jan 2012 is 7.90/8.05.

    So the intrinsic value is $3.39 and you collected a premium of about $4.61. Not to bad, but the theta on an option that far is is about 0.
    When were you hoping to get assigned? It's not gonna be for at least 18 months and a lot can happen between now and then.
  7. There is no such thing as a free lunch. The margin used to be naked short the deep put would be the same as if you laid out the money to buy the stock and sold the 40 call, there is no free money there. The dividend you’d collect is priced into the put and into the long stock plus short OTM call. You just crossed a bigger bid offer spread and gave someone else the option of exercising the put.
  8. The risk profile is the same for the CC (buy stock sell the 40 call) and the cost to carry the position is exactly the same.
  9. I sold em for 8.95 this month earlier.

    I do not expect to be assigned now obviously but somewhere past 12 months. I wanted to buy stock at a discount without having to outlay the cash right now but deposit cash over time VS buying today, paying margin interest or selling stock. buying on a layaway plan :)
    #10     Mar 23, 2010