This is more a "thought experiment" than anything else, but I'm wondering if the odds of assignment can get close to 100% if you sell a put option above the current market price? (very new to options trading here... so apologies if my use of the lingo is atrocious)
Seems crazy, I know, but I'm curious how this would play out in the market. If a stock is trading at $20, and I sell a long put option at something ridiculous like $25, then am I close to guaranteeing that I'll be assigned those shares at that price? If I was the put buyer, seems like I'd take that deal immediately and smile at the idiot who sold me the option in the first place.
Just to tease a friend, I was joking around with my "new" strategy of buying a long put option that's deeeeep in the money and then selling a put option that's a little less in the money. I noticed on a few stocks that the premium offset from buying and selling the option can be overcome by a small profit with the difference in the share price.
Real world example here on MSFT Jan 2019 puts (not considering commission fees):
Current mkt price $60.53
Sell 1 JAN 2019 65.00 put and collect $1130
Buy 1 JAN 2019 75.00 put and pay $1840
In the hole by $710!
So... If I get assigned the shares at $65, I execute my $75 put to make $1000 on the trade. Subtract out my loss on the put purchase, and it looks like I make $290. When I look at my actual broker fees, after all the dust settles this trade would make closer to $250 on a one contract increment.
This whole thing only works if I get assigned the shares... hence my question. If I sell a ridiculously in the money long put option, what are the odds I get assigned, and any chance that assignment comes in the near term rather than near expiration? For this play, obviously the sooner the assignment the better.
Or, in my naivety of options trading, am I missing something completely here and this is just foolish alchemy?
Seems crazy, I know, but I'm curious how this would play out in the market. If a stock is trading at $20, and I sell a long put option at something ridiculous like $25, then am I close to guaranteeing that I'll be assigned those shares at that price? If I was the put buyer, seems like I'd take that deal immediately and smile at the idiot who sold me the option in the first place.
Just to tease a friend, I was joking around with my "new" strategy of buying a long put option that's deeeeep in the money and then selling a put option that's a little less in the money. I noticed on a few stocks that the premium offset from buying and selling the option can be overcome by a small profit with the difference in the share price.
Real world example here on MSFT Jan 2019 puts (not considering commission fees):
Current mkt price $60.53
Sell 1 JAN 2019 65.00 put and collect $1130
Buy 1 JAN 2019 75.00 put and pay $1840
In the hole by $710!
So... If I get assigned the shares at $65, I execute my $75 put to make $1000 on the trade. Subtract out my loss on the put purchase, and it looks like I make $290. When I look at my actual broker fees, after all the dust settles this trade would make closer to $250 on a one contract increment.
This whole thing only works if I get assigned the shares... hence my question. If I sell a ridiculously in the money long put option, what are the odds I get assigned, and any chance that assignment comes in the near term rather than near expiration? For this play, obviously the sooner the assignment the better.
Or, in my naivety of options trading, am I missing something completely here and this is just foolish alchemy?
