kcveins
delivery 2/7/13
Newbie question - I sold some TSLA puts @ 80 for 6/7 - do I have to buy them back on Friday to close out the position?
Newbie Options Trading
- Thread starter Jonathan Hewitt
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- investing options TSLA tsla stock
ShortSlaver
Member
You can "buy to close" whenever you'd like. The closer to Friday the less they will be worth unless the stock tanks the next couple days.
adiggs
Active Member
If the puts are out of the money, you also have the option of allowing them to expire worthless (for no expense). Or if they are in the money, you have the option of allowing them to be exercised, and to have the stock assigned to you at $80/share. This latter strategy is something used by some people to acquire the stock.
kcveins
delivery 2/7/13
So, as long as TSLA stays >80, then I keep the $100 (- commission) and don't have another expense of another trade?
Thanks for the info!
kenliles
Active Member
- Jun 7, 2012
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That's correct. It's a good strategy for obtaining the stock on a drop as it will get Put to you for $80 if it falls below that by expiration. Or just pocketing the premium you collected on your Sell-to-Open, which is yours to keep regardless. Remember you have to maintain the cash, margin, or (covered)stock shares for purchase of the $80 shares if they are put to you.
smorgasbord
Active Member
No.
If Tesla stays above $80, they will expire automatically and you'll keep the money you got when you sold them.
If Tesla is below $80 when the market closes on 6/7, your brokerage will automatically exercise them for you and you'll buy the stock at $80.
If you're worried about the latter, then you can buy back the Puts for the current going rate. Right now there doesn't appear any reason to do anything but let them expire.
^^^
Yep. Good answers that cover kcveins' situation.
(As an options amateur, my primary strat for making $ on options is selling OTM naked puts to collect premium. I don't dabble in TSLA stock nor options, at the moment. Unfortunately, I missed all of the massive run up during the short squeeze.
)
One problem w/getting assigned is that many brokerages will charge an assignment fee that could be somewhat pricey (e.g. $15 or $20 at TD Ameritrade).
One advantage of closing out the position early, esp. when a short put position becomes nearly worthless is that it frees up your buying power and eliminates the obligation/risk. You can do other stuff w/that buying power (sell more puts, buy more stock, etc.)
TD AM/TOS charges you no commission to close out short put (and short call) positions when the option is down to $0.05 or less. I tend to close out my short put positions at between $0.01 and $0.05 because of this.
I'm not sure if kcvein's goal is to collect the entire premium, collect some of it and take advantage of theta decay or to acquire TSLA stock at a discount.
Here's a hypothetical example: Let's say someone sold puts for some expiry at $80 strike at $1 (and collected $100 premium). Let's say the stock and time are on your side and eventually at some point, the put is worth $0.05. I'd just close it out. It frees up buying power (and I pay no commission for that) and I have no further risk/obligation. It might not be worth to squeeze out the remaining $5 of profit.
If you hold until expiration, it could rise above $0.05 due to the underlying stock falling and/or IV rising. Worse, the underlying stock could get hammered and fall to say $20 (picked this # out of the air). Well, the put price is going to rise A LOT and at expiration, if it's put to you, you're going to pay $80/share, even though the underlying is $20. And, you'd be in the hole ~$5900.
Whenever I sell a naked put and it gets executed, I have a habit of placing a GTC closing order w/a limit of a nickel or less before the next trading day. That way, I don't forget and reduce the chance of bad things happening.
Yep. Good answers that cover kcveins' situation.
(As an options amateur, my primary strat for making $ on options is selling OTM naked puts to collect premium. I don't dabble in TSLA stock nor options, at the moment. Unfortunately, I missed all of the massive run up during the short squeeze.
) One problem w/getting assigned is that many brokerages will charge an assignment fee that could be somewhat pricey (e.g. $15 or $20 at TD Ameritrade).
One advantage of closing out the position early, esp. when a short put position becomes nearly worthless is that it frees up your buying power and eliminates the obligation/risk. You can do other stuff w/that buying power (sell more puts, buy more stock, etc.)
TD AM/TOS charges you no commission to close out short put (and short call) positions when the option is down to $0.05 or less. I tend to close out my short put positions at between $0.01 and $0.05 because of this.
I'm not sure if kcvein's goal is to collect the entire premium, collect some of it and take advantage of theta decay or to acquire TSLA stock at a discount.
Here's a hypothetical example: Let's say someone sold puts for some expiry at $80 strike at $1 (and collected $100 premium). Let's say the stock and time are on your side and eventually at some point, the put is worth $0.05. I'd just close it out. It frees up buying power (and I pay no commission for that) and I have no further risk/obligation. It might not be worth to squeeze out the remaining $5 of profit.
If you hold until expiration, it could rise above $0.05 due to the underlying stock falling and/or IV rising. Worse, the underlying stock could get hammered and fall to say $20 (picked this # out of the air). Well, the put price is going to rise A LOT and at expiration, if it's put to you, you're going to pay $80/share, even though the underlying is $20. And, you'd be in the hole ~$5900.
Whenever I sell a naked put and it gets executed, I have a habit of placing a GTC closing order w/a limit of a nickel or less before the next trading day. That way, I don't forget and reduce the chance of bad things happening.
Last edited:
kcveins
delivery 2/7/13
^^^
Yep. Good answers that cover kcveins' situation.
(As an options amateur, my primary strat for making $ on options is selling OTM naked puts to collect premium. I don't dabble in TSLA stock nor options, at the moment. Unfortunately, I missed all of the massive run up during the short squeeze.
One problem w/getting assigned is that many brokerages will charge an assignment fee that could be somewhat pricey (e.g. $15 or $20 at TD Ameritrade).
One advantage of closing out the position early, esp. when a short put position becomes nearly worthless is that it frees up your buying power and eliminates the obligation/risk. You can do other stuff w/that buying power (sell more puts, buy more stock, etc.)
TD AM/TOS charges you no commission to close out short put (and short call) positions when the option is down to $0.05 or less. I tend to close out my short put positions at between $0.01 and $0.05 because of this.
I'm not sure if kcvein's goal is to collect the entire premium, collect some of it and take advantage of theta decay or to acquire TSLA stock at a discount.
Here's a hypothetical example: Let's say someone sold puts for some expiry at $80 strike at $1 (and collected $100 premium). Let's say the stock and time are on your side and eventually at some point, the put is worth $0.05. I'd just close it out. It frees up buying power (and I pay no commission for that) and I have no further risk/obligation. It might not be worth to squeeze out the remaining $5 of profit.
If you hold until expiration, it could rise above $0.05 due to the underlying stock falling and/or IV rising. Worse, the underlying stock could get hammered and fall to say $20 (picked this # out of the air). Well, the put price is going to rise A LOT and at expiration, if it's put to you, you're going to pay $80/share, even though the underlying is $20. And, you'd be in the hole ~$5900.
Whenever I sell a naked put and it gets executed, I have a habit of placing a GTC closing order w/a limit of a nickel or less before the next trading day. That way, I don't forget and reduce the chance of bad things happening.
My goals were to just learn how to trade options (and of course make a little money), but not necessarily to collect the entire premium. I want to learn more about leverage, but without doing something crazy. If I end up buying some shares, that's OK as I believe in TSLA long term.
Thanks everyone for the input...its fun learning something new!
kcveins
delivery 2/7/13
Since I learned a lot from the previous question, let me clarify something else.
Lets say that I sell some TSLA puts 12/21/13 @ 80. If the stock hits $80 between now and the expiration date, I don't have to buy the stock at that price, but may be obligated to buy it by 12/21 if the price were to stay (or drop below) it. My risk in selling the puts will be that my effective price will be $80 - $11 (current price for the puts) and that the stock may be trading lower than $69. So this is the case unless I were to buy to close out the position, correct?
Lets say that I sell some TSLA puts 12/21/13 @ 80. If the stock hits $80 between now and the expiration date, I don't have to buy the stock at that price, but may be obligated to buy it by 12/21 if the price were to stay (or drop below) it. My risk in selling the puts will be that my effective price will be $80 - $11 (current price for the puts) and that the stock may be trading lower than $69. So this is the case unless I were to buy to close out the position, correct?
smorgasbord
Active Member
Well, you might. Sometimes the holder of the option will exercise early. That typically happens with dividend paying stocks, when the dividend is greater than the remaining time value, for instance. Tesla doesn't pay a dividend, so early exercise is unlikely unless the stock takes a sudden dive and the Put holder is scared it's going to go back up soon.
Well, if the stock is below $69, then it's going to cost you more than $11 to buy those Puts back, thereby locking in your loss. So, only do that if you no longer believe in Tesla. Better to stick to your guns and just buy the stock and hold it until it goes up.
Yep.
I'm looking at Dec '13 TSLA puts @ 80 and it looks like they're ~$11.9. I used the theo price calculator in TOS and if tomorrow, TSLA fell from $95.37 to $69, that 80 put would now be worth $21.80. So, you'd have to pay that much to buy it back. Thing is, if a stock makes that big a move, the IV will likely spike, further pushing up the put price. For kicks, I bumped the IV up 30% and the theo price is $27.71.
kcveins
delivery 2/7/13
Gotcha. So the person opposite to me (I sold a put, so he bought a call or did he buy a put?) is the one who can close out the transaction and it is not just related to the expiration date but to what his feeling of what is going to happen to the stock (or dividend payout). So once I sell a put, unless I buy to close or outright buy the stock, the onus of closing this belongs to the holder...
Right, I just worded this part poorly. I was "thinking in my head" that if the stock were starting to drop that buying to close the position before the cost hit $11 is the way to close it out without a loss.
Thanks
kenliles
Active Member
- Jun 7, 2012
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Yes and no. You're not conducting the option contract against a single person. It's against a market or basket of demand. There is a Market Maker (MM) for the stock (generally can be more than one but referred to in the total). The demand seen by the MM for Calls and Puts (tied to the underlying stock) will drive the pricing, but your contract is with the market not an individual. A prescribed arrangement for assigning any given exercise flows between the MM and you. At expiration, the brokerages who make up the MM will exercise all outstanding calls-puts for that expiration. In other words they step in and enforce the contracts, using their capital to conduct the exchanges when needed and settling with buyers-sellers. This isn't a complete or detailed explanation (others can do that better) but gives you the basic operational scenario.
deonb
Active Member
Ok. 'xplain this to me:
I have 2 Ameritrade accounts, a trading and an IRA. In both accounts I have calls expiring on June 22 2013.
In balanced & positions in my trading account, it is listed as:
TSLA Jun 22 2013 95 Call
In balanced & positions in my IRA account, it is listed as:
TSLA 100 JUN 13 87.5 CALL
Since I'm used to my trading account, every time I open my IRA, I get a little heart attack cause I think it's a $100 strike expiring on June 13... However, if I open it, it correctly list it as:
TSLA Jun 22 2013 87.5 Call
Is there some sort of a setting to modify the display? Why are they listed so differently between the 2 accounts?
I have 2 Ameritrade accounts, a trading and an IRA. In both accounts I have calls expiring on June 22 2013.
In balanced & positions in my trading account, it is listed as:
TSLA Jun 22 2013 95 Call
In balanced & positions in my IRA account, it is listed as:
TSLA 100 JUN 13 87.5 CALL
Since I'm used to my trading account, every time I open my IRA, I get a little heart attack cause I think it's a $100 strike expiring on June 13... However, if I open it, it correctly list it as:
TSLA Jun 22 2013 87.5 Call
Is there some sort of a setting to modify the display? Why are they listed so differently between the 2 accounts?
kenliles
Active Member
- Jun 7, 2012
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I don't use Ameritrade, but in general they shouldn't be. The format of your trade acct is the most common form of 'symbol Expiry Strike Option-Type' from my experience. Is the 100 the number of contracts? I think I would call Ameritrade for an answer, I agree that seems odd
kenliles
Active Member
- Jun 7, 2012
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yes- but I was looking at a shorter expiration- something like Dec13 but a higher strike maybe $80. Trying to identify some to grab on the next pull back. I think smorg does these too
mitch672
Active Member
I have 2 Dec13 70 PUTs, sold them for $8.2, been going down in value (which is what you want on a put, keep the premium and have it expire worthless), Or buy TSLAat $70-$8.20 premium received, or $61.80/share
kenliles
Active Member
- Jun 7, 2012
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yep - there you go- that's about the range I'm looking at selling this week if we pull back to low-mid 90s; otherwise I'll use the $80 strike;
those $70 strike are about $6.30 currently- and will go to about $8 @ 91 price stamp
I've been using the same shorti put strategy for some time now. I notice that many are going out 9 or even 12 months. I typically go out only 3 months and redo the trade for a fresh 3 months every quarter. Is one way better than the other?
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