4 months of active trading and still have a question ....

wburt1948

wburt1948

Appreciate any reply to this scenario pending.

This is generalized but applies to my situation.

XYZ stock price was $4.50.
Strong Sell recommendation.
I buy a $3.00 Put. One contract.
Stock price falls to $1.25. Low volume and zero bids for Puts at the $1.25 price point.
Should I enter a stock purchase order for 100 shares at $1.25 and then exercise my Put option to sell at $3.00
- or -
is there another possibility?
Thanks again.
 
If/since the put is worth that much (actually should be worth $3 strike - $1.25 stock = $1.75), then you can sell that put at that price.
Lack of bids doesn’t matter in this case as someone has to post the first bid or the first offer/ask, and it can be you. Computers should find and take your offer when it’s so good that you’re losing the remaining/extrinsic value.
 
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How much time till expiry?

Keep in mind if you buy the stock,you are now synthetically long the call..

If there is time left,do not exercise the put

wburt1948 said:
Appreciate any reply to this scenario pending.

This is generalized but applies to my situation.

XYZ stock price was $4.50.
Strong Sell recommendation.
I buy a $3.00 Put. One contract.
Stock price falls to $1.25. Low volume and zero bids for Puts at the $1.25 price point.
Should I enter a stock purchase order for 100 shares at $1.25 and then exercise my Put option to sell at $3.00
- or -
is there another possibility?
Thanks again.
More...
 
Worst case scenario, you should at least be able to sell intrinsic value ($3.00 - $1.25 = $1.75) for those puts, which are now deep ITM. Don't sell them for anything less. As TaoWave points out buying 100 shares will make you synthetically long the $3.00 call, but you will have locked in $1.75 - [whatever you paid for the put] profit...and now are synthetically long the OTM $3.00 call for free.

Recommendation: Since the $3.00 put is now ITM and illiquid, buy the 100 shares @ $1.25, and try and sell the more liquid OTM $3.00 call for some credit. You'll be left with long 100 shares of XYZ and short one $3.00 call, and long one $3.00 put. [Long 100 shares] + [short -1 $3.00 combo] is a riskless conversion that will cancel each other out at expiration.
 
wburt1948 said:
Appreciate any reply to this scenario pending.

This is generalized but applies to my situation.

XYZ stock price was $4.50.
Strong Sell recommendation.
I buy a $3.00 Put. One contract.
Stock price falls to $1.25. Low volume and zero bids for Puts at the $1.25 price point.
Should I enter a stock purchase order for 100 shares at $1.25 and then exercise my Put option to sell at $3.00
- or -
is there another possibility?
Thanks again.
More...
%%
Sounds like a real bad idea to buy that penny stock [100 or any shares]. I like to milk a trend so I like the idea of trying to close that put for$1.50/ 1.75, or [2nd choice]$1.20 monday
Low volume is ok/ one more put exit should not hurt you much. Low volume can be worse for a short term trade+ I assume you can get out @ the bid prices I noted??
 
He's buying stock to cover the put and getting "a free call"...If he catches a put bid above parity,it's one thing,but why give the call away
 
Thank you all for the great replies.
My thinking was that I should/could buy 100 shares at $1.25 for $125, exercise the $3.00 put to sell for $300 and pocket the $175 difference. I like the other possibilities which is what I was asking for.
Thanks again.
 
By buying the shares you now have a "free call". Sell the $3.00 call for whatever you can get for it to maximize the trade. Make the $175 difference + credit for selling the "free call."
 
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