I sold a vertical Nov 06 25/30 Put spread on SY (my first vertical sale), and today I've been assigned the 30 put and had to buy 100 shares of SY at 30. I sold that put for 3.97 originally so I only lost like $20 or so (without comissions). My question is, what do I do now? Do I close the position?
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Assignment (newbie)
- Thread starter IIAce
- Start date
Quote from IIAce:
I sold a vertical Nov 06 25/30 Put spread on SY (my first vertical sale), and today I've been assigned the 30 put and had to buy 100 shares of SY at 30. I sold that put for 3.97 originally so I only lost like $20 or so (without comissions). My question is, what do I do now? Do I close the position?
After assignment, your current position is:
Long NOV 06 25 PUT
Long 100 SY
i.e. you are now synthetically
Long NOV 06 25 CALL
Unlimited upside, limited downside equal to the debit paid for the synthetic CALL.
To get back to your original bull vertical position, you would have to write the NOV 06 30 CALL. This would result in the following collar:
Long NOV 06 25 PUT
Long 100 SY
Short NOV 06 30 CALL
If your initial forecast still remains then you could consider doing this. It has the same risk profile as the original spread +/- any adjustments due to movement of SY after assignment.
Good luck!
MoMoney.
Or, if you are not bullish anymore and you don't want the stock, sell a Nov 25 call for 1.45 and hope it gets called at Nov expiration. You can also sell the long 25 put for an extra .50, or keep it for downside protection.
I see that the Nov 30 P has zero open interest. You must have had the only one. Also the extrinsic value is negative, which is probably why it was exercised.
I see that the Nov 30 P has zero open interest. You must have had the only one. Also the extrinsic value is negative, which is probably why it was exercised.
Quote from momoneythansens:
Selling the Nov 25 CALL is completing the conversion. You are offsetting the synthetic Nov 25 CALL with a real Nov 25 CALL.
And getting paid 1.45 for it. Is that bad? Opening a conversion all at once guarantees no profit or loss (except commissions), but in this case he would be "legging in" if that term applies here.
His net price for buying the stock is 30 - 3.97 = 26.03. (Question: is the 3.97 counting commission?). If he can sell it for 25 + 1.45 = 26.45, then his only loss would be whatever he paid for the long put - .42. Or, like I mentioned he could also sell the put.
Quote from Eliot Hosewater:
And getting paid 1.45 for it. Is that bad? Opening a conversion all at once guarantees no profit or loss (except commissions), but in this case he would be "legging in" if that term applies here.
His net price for buying the stock is 30 - 3.97 = 26.03. (Question: is the 3.97 counting commission?). If he can sell it for 25 + 1.45 = 26.45, then his only loss would be whatever he paid for the long put - .42. Or, like I mentioned he could also sell the put.
Actually, my post was meant to be informational rather than critical of your suggestions. Sorry!
having said that, I'm not sure of your latest assessment though. You're going to make me run the numbers aren't you? Grrr....
It seems unlikely that if his original position was showing a loss (my assumption) that you can convert it into another position that has somehow locked in a profit.
I will look at the numbers though. These little examples are great!
MoMoney.
We don't know what he paid for the 25 put. I wasn't saying he would make a profit, just trying to minimize the loss if possible, especially if he was no longer interested in keeping the stock.
Quote from Eliot Hosewater:
And getting paid 1.45 for it. Is that bad? Opening a conversion all at once guarantees no profit or loss (except commissions), but in this case he would be "legging in" if that term applies here.
It would be nice to have all of the numbers for the initial trade.
Yes, your suggested trade would be legging into the conversion but it would most likely be locking in a loss - though it's difficult to tell without the figures for the long PUT. There seems little benefit to doing said conversion over and above liquidating the synthetic CALL to realize the same profit/loss immediately.
His net price for buying the stock is 30 - 3.97 = 26.03. (Question: is the 3.97 counting commission?). If he can sell it for 25 + 1.45 = 26.45, then his only loss would be whatever he paid for the long put - .42. Or, like I mentioned he could also sell the put.
If he sold the PUT in addition to the CALL then the net resultant position would be a synthetic naked PUT which may or may not be a risk profile the OP now desires: Bullish, Unlimited downside risk. The premium received is obviously not a locked in profit though.
Quote from Eliot Hosewater:
We don't know what he paid for the 25 put. I wasn't saying he would make a profit, just trying to minimize the loss if possible, especially if he was no longer interested in keeping the stock.
Indeed, we need to know the cost of the 25 PUT. My mistake, I interpreted your words "getting paid" for selling the CALL as somehow implying profit potential for the suggested adjustment. My bad.