You don't have to buy the shares before exercising puts if you don't want to and yes if you exercise the puts without the shares called nake puts you will be short in your account. Two things can happen with this: 1) If there is not enough or no available shares to be shorted, you will have to close the short position right away after exercising the puts and you will have to buy in the market anyway to close the position and that leads to 2) By the time when you buy the shares, the price might have gone up and you might be potentially short-squeezed. Nobody knows what can happen with the company. If this is just a Chapter 11 reorganization, the company can do something like debt restructuring and can still survive especially if it gets some white knight that comes in to buy the company, the share price can spring back up to its previous level and you would be short-squeezed or at least lost some of the profit. In short (no pun intended), buying the shares first now at cheaper price just makes sure you are covered and locks in at least majority of the profit. Sure the share price can go to zero and you get 100% of the gain but what if it doesn't? And besides, unless you bought huge amount of shares like at least hundred's of K's of shares, you are not going to miss much.
I'm quickly figuring out I may be in a little over my head. Very overwhelmed and confused with everything. So if I bought the $1 put option expiring on May 17 for .62, is selling my option monday morning still my best strategy? Also is there something I should set-up, like an auto-sell when the market opens or should I wait awhile monday before selling? Again thanks for everything and sorry for being such a rook
It's a prepackaged bankruptcy. Terms are out. New equity is going to the debt holders. It appears it will be in OCC's hands.
Could you elaborate a bit more on what exactly that means.. How do I know or find out what to do with the option? Thanks for your help
Robert, a person above my post "said this" and that is who I was referring to. Still, you read the option books and they don't mention that you can exercise puts to have a short position or get cashed out if no shares are available to borrow. It should be stated by all of them in their books for completness on the subject. There have been posts to ET, complaining that their deep ITM puts don't seem to have a market to trade, given what they see in the bid/ask quotes. Some brokers may even show no bid/ask or no price at a 1 delta. This is why I mentioned it as another choice for the OP.
Take the money and run. It's just a matter of figuring out the best opportunity without botching it and letting the opportunity slip away.
I wouldn't rush too much. Just give it some thought on monday and look at the market carefully before you do anything. Let the market hit you (on offer).
By take the money and run... Do u mean sell my option Monday? If so should I look to sell it immediately when market opens? Thanks for your help
Not necessarily. It's just that sometimes like when PCG crashed in January if you wait too long the price goes back up.
Can somebody please help me understand why my option went straight down to .01 when market opened? I thought I was in a good position? Please lend some advice. Looks like there's no activity on the stock at all. Not sure what to do here.