not selling puts for unstable companies

[dagnyt]

Quote from ofinance:

a sure loosing trade for the market maker who will have to buy it

There is no such thing as a 'sure losing trade when buying an option'

Have you ever hear the word: "bankrupt?"

I'm not predicting bankruptcy, but it is a possibility. That's why the puts are priced where they are.

Mark

 

[spindr0]

Quote from ofinance:

BAC and GE both got to $5, are you saying these two companies are crappy? i don't think they are especially not GE

Stocks are priced at $5 for a reason (they're "crappy")

if you are concerned one company could go bankrupt, you can sell puts on a basket of stocks or on an ETF if you can find one at around $5, you are therefore less vulnerable to the situation of just one stock

Or, perhaps you could use lower risk strategies or quite possibly, even speculate on higher quality companies... ya know, those with good fundamentals that are hanging in there despite this "crappy" market.

 

[ofinance]

Quote from spindr0:

Stocks are priced at $5 for a reason (they're "crappy")

are you calling GE a crappy stock?? if yes i think you don't know anything about stocks, back in august, LEH was at $15 while F was at $2 and guess which one filed for chap11 just a month later

your reasoning of judging a stock by its price is not corect

 

[spindr0]

Quote from ofinance:

are you calling GE a crappy stock?? if yes i think you don't know anything about stocks, back in august LEH was at $50 while F was at $2 and guess which one filed for chap11

Not only am I impressed by your powers of deduction but I'm stunned by the brilliance of your logic. Do you have like ESPN or something???

ROFL

 

[rluser]

Quote from ofinance:

are you calling GE a crappy stock?? if yes i think you don't know anything about stocks, back in august, LEH was at $15 while F was at $2 and guess which one filed for chap11 just a month later

your reasoning of judging a stock by its price is not corect

Quote from spindr0:

are you calling GE a crappy stock?? if yes i think you don't know anything about stocks, back in august, LEH was at $50 while F was at $2 and guess which one filed for chap11

WTF?

I will say in reponse to OP that my personal opinion is that the trade was a bad one. I have no idea your thought process at the time, but mine were contrary to yours. It's nice that it worked well.

I will agree with dagnyt and disagree with options911 on the matter of only engaging in the practice when one is willing to own the stock for this very simple reason: selling the american style option obligates you do to so - you have absolutely no choice as to if and when it will occur.

Supporting that notion: OP, I firmly believe that the debt/liquid assets ration is critical. Doesn't the current market highlight that?

When looking in the sub $5 range the possibility of early assignment seems particularly high: it's a panic button, option spreads can become unreasonable, commissions are relatively large compared to the prices.

On that note, OP should find a different broker for trading options.

To options 911: I'm buying those F puts if you are selling Like OP, I made a decision months ago, and it's been lucrative. Thanks for your blog. I am finding it interesting.

 

[ofinance]

Quote from rluser:


When looking in the sub $5 range the possibility of early assignment seems particularly high

there is no assignement risk on options that still have time value because its cheaper for the option holder to sell his contracts than to exerce his options