What's wrong with getting puts assigned?

Discussion in 'Options' started by Eliot Hosewater, May 14, 2006.

  1. This is an excellent way to accumulate stock you want to own. You still need to be bullish on the stock to implement the plan...but it is a good one. Nice methodical way of acquiring stock.
    #11     May 14, 2006
  2. martingale is double down strategy ie - at blackjack - lose one $5 bet - bet $10 - lose the $10 - bet 20$ - lose $20$ - bet $40. unfortunately, like writing calls or puts - can work swimmingly until the one big loss and then you are salting fries at jack in the box wondering what the hell happened.
    #12     May 14, 2006
  3. Short answer, nothing wrong with getting assigned.

    Usual put assignment horror story goes something like this; Bob (tried to assign as generic a name as possible) thinks its neat and great to collect premiums on writing puts. He does it a little with success and no assignment. Bob thinks, man I could do this every month and generate a lot of cash flow. Bob replicates process for many months. Then Bob starts to slowly extend past appropriate risk tolerance levels and then, presto, the market starts to tank (like the last couple of days) and he takes assignment on a bunch of stock he REALLY NEVER EVER INTENDED TO OWN AT ANY PRICE.

    You see, if writing puts is a part of an overall process that has been evaluated and conforms to your personal specifications, there's absolutely nothing wrong with assignment. Later this week I expect (hope) to be assigned some stock. It is stock that will be used to build a position that I have evalutated and expect to make calculated returns upon.

    The problem with assignment usually comes when the writer starts to chase premiums and gets overextended.

    Good Luck.
    #13     May 14, 2006
  4. cnms2


    I think that this is an exaggeration. It's like hoping for a sale on an item you paid full price... Even if you think it's worth its full price, you'd still overpay.
    #14     May 14, 2006
  5. Well, mathematically it works assuming two things:

    - you have unlimited $$$ to keep doubling with each loss (in which case you wouldn't need to be doing this);

    - you win eventually, then start again.

    That's why casinos have table limits.

    Edit: I actually saw someone a few days ago saying he was going to try this at another options forum.

    #15     May 14, 2006
  6. you might have the self inflicted misfortune of writing puts on something like Enron.......

    what could possibly go wrong?
    #16     May 14, 2006
  7. Well, you could have bought Enron stock, and not received the put premium.

    I asked a guy at Schwab why they let anyone own a naked stock, but you must be "qualified" to sell a naked put. He tried to explain why naked puts were riskier.

    #17     May 14, 2006
  8. gee, sorta like standing on the stern of the Titanic, you're the last into the water
    #18     May 15, 2006

  9. Huh?
    #19     May 15, 2006