I need help managing a bull put; I did not fully understand the trade.
- Thread starter klattermusen
- Start date
Are you saying that you can instruct your broker to NOT excersise on a short put expiring itm?
No. I am saying the option holder can instruct the broker not to exercise his/her option that he/she has purchased even if it's ITM.
I thought you have experience trading options. LOL I am surprised that you are questioning me on such basic knowledge about options. If you really don't know this, I hope I have helped you understand options trading better.
Ok, now it makes sense.
The post I have quoted didn't make sense, as you are only referring to the short put and its strike price.
I trade options, I don't give advices, unless they really basic.
The OP trade is pretty basic, I see no reason in confusing it with risky adjustments.
Wasn't really trying to give advice, just trying to help by answering OP's questions. The thread title said he needed help. LOL And what I suggested were not necessarily risky adjustments, just strategies that OP can do to manage his risks better IMO. It's what I would do. Hope they help the OP.
But I think you agree that selling the long puts converts a 70cent risk into a 11$ risk, with substantial margin req change.
No I never realized that. Please elaborate and explain how selling the long leg of the bull put spread in case the price doesn't go down further after ex-div would turn a 60 cent risk (not 70 cent I believe as how your friend @taowave calculated) into a $11 risk and with a substantial margin req change. I am actually quite curious and intrigued. And I am sure this will be good for the OP's knowledge.I am not sure about the credit OP got, in the info posted I quickly noticed 200 lots, .70 credit and about .28 debit.
Depending on fills, let's round it to 40c total credit for 1$ wide, so yes, 60c risk, (60-40 on 100).
If he sells the long put of the spread, he is left with short naked puts at 11$.
First trade, the bull put, had a max loss of 0.60
Converting to a naked put 11$, obviously changes that.
Max risk of 11$ is only with PBR at 0$.
But margin will flip to around 65k req (from about 8k for the spread) for the position, with a notional value of about 200k.
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And even if, the 0$ on PBR has a 0.0...% chance, it could drop a couple of dollars and turn the loss into a x2, 3 or more than predicted loss at inception.
I actually own calls on PBR, left over of a call calendar I took at around 14$. I took that while looking for calendar deals on scanners, totally ignoring dividends and stock prices... Still a noob.
Short front legs expired otm. Although a realised profit, the total position was at a loss. I kept the calls expiring in December.
They don't look so good now but I have chances until mid December to sell them back.
I actually own calls on PBR, left over of a call calendar I took at around 14$. I took that while looking for calendar deals on scanners, totally ignoring dividends and stock prices... Still a noob.
Short front legs expired otm. Although a realised profit, the total position was at a loss. I kept the calls expiring in December.
They don't look so good now but I have chances until mid December to sell them back.
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You realize that the underlying is going ex-div on Nov. 22, 3 days before the expiry right? That's why the OP is worried about getting assigned on his short put hence the purpose of this thread. So if he's already worried about an assignment risk, why would I suggest that he sells the long put, the only hedge that he has in place against the potential assignment? LOL Here is my previous post on this. If you sell the long put leg while the short put is still there, then yes, you will turn the spread into a naked short and that will be tremendous risk but after the short put is not there anymore due to assignment, no, the risk would not be $11. Hope this explains everything better for you:
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