Newbie Questions About Selling Put Options

[OptionGuru]

Right, sorry... Buy to CLOSE. got it.

if that's the case, then how often do put buyers exercise their right to the stock?

If I sell a put, or call... what's the chance of getting assigned.

99% of option traders have no intention of trading the underlying.

 

[blueplayer]

F
Short Put - up side is limited down side is unlimited

Juts a correction here, short puts don't have unlimited risk as the underlying can only fall to 0 in the worst case scenario.

When I sell puts I always use European options to avoid assignment risk, and it is mostly done to extract skew from the vol surface (I hedge them neutral at inception). Of course I only enter those trades if skew is fat enough.

 

[ironchef]

Juts a correction here, short puts don't have unlimited risk as the underlying can only fall to 0 in the worst case scenario.

When I sell puts I always use European options to avoid assignment risk, and it is mostly done to extract skew from the vol surface (I hedge them neutral at inception). Of course I only enter those trades if skew is fat enough.

Skew means volatility is higher for ITM and OTM as compare to ATM? What do they call volatility higher for short date and very long date as compare to intermediate dates?

Thanks.

 

[Cyse]

Besides length, whats the difference between weekly and monthly style options?

Will vertical spreads also work in the same manner for weekly as monthly?

 

[blueplayer]

Skew means volatility is higher for ITM and OTM as compare to ATM? What do they call volatility higher for short date and very long date as compare to intermediate dates?

Thanks.

Skew is the name we give to the shape of the volatility surface in any direction (both for strikes and tenors).

In the futures space in general, the words contango and backwardation are used. Contango refers to a regime where the near dated futures are cheaper than the far dated ones. Backwardation is the opposite. So if we talk about VIX futures you might hear that volatility is in contango or backwardation.

 

[Cyse]

Normally buyers only exercise on Expiry day. Simply because the options have time premium and you will be better of $$ if you sold the option instead of exercising it.

Some people early exercise for whatever reason.

I've been buying options for over 4 years and never exercised b4.

have you ever been assigned?

 

[ironchef]

have you ever been assigned?

For me too many times when I sold covered calls. What hurts more was actually, as a result, I was forced to pay huge capital gain taxes because I held those stocks over many years.

 

[CBC]

have you ever been assigned?

No I've never been assigned, I'm a buyer only.

 

[ironchef]

No I've never been assigned, I'm a buyer only.

Why buy only may I ask?

 

[Cyse]

For me too many times when I sold covered calls. What hurts more was actually, as a result, I was forced to pay huge capital gain taxes because I held those stocks over many years.

Did you wait until expiration? Someone said 99 percent of people don't exercise

No I've never been assigned, I'm a buyer only.

You mean you only buy calls and puts? Or you use more complex strategies?