Quick question on selling a put

Discussion in 'Options' started by oraclewizard77, Jan 4, 2010.

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  1. oraclewizard77

    oraclewizard77 Moderator

    Let's assume I own a position in a stock and I trade with IB. Now, I would not mind owning more stock but at a lower price. Let's assume I sell a Jan put at $ 20/sh for $ .70, and the stock falls to $ 19.90/sh on expiration. Assuming I don't do anything, would I end up owning 100 shares more of the stock and paying $ 20/sh? If you say no, what about if the stock fell to $ 19/sh?
  2. l2tradr


    Yes. Selling Jan 20 put for 70 cents makes your breakeven 19.30 excluding commissions. If stock ends up below 20 you'll get assigned and pay 20/share (keep in mind that you collected 70 cents of premium already). If stock is at 19, you get assigned, pay 20 and technically overpay by 30 cents as you could have purchased it on the open market for 19 at expiration. Whether you already own the stock or not has no impact here on margin requirement or anything else.
  3. 1) You're a moderator?
    2) At expiration, at $19.90/share, in all likelihood, you would have the stock "put" to you at the strike price, $20/share.
    3) You would be cash-credited with the put premium, $70.
    4) Your total cost basis is $19.30/share. ($20 - $0.70)
    5) At $19.90, you're "okay". At $19, you're underwater.
    6) At $19, you would almost certainly be assigned/put the stock. :cool:
  4. oraclewizard77

    oraclewizard77 Moderator

    Thanks, normally I just buy and sell stock, but with IB, I have approval to do more things, so I wanted to make sure what happens since my old brokerage I could not sell naked options.

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