On Monday I was looking at selling the 32.00 strike Puts on WFMI for around .40 figuring with 5 days till expiration I could net the premium. The stock gaped down Wednesday morning to open at 30.00, the question is would the option be exercised at 32.00 strike where by I could then sell the stock short or would I have been exercised at the 30.00 open. Any comments would be appreciated.
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Option Question
- Thread starter Trinitytrader
- Start date
Quote from Trinitytrader:
On Monday I was looking at selling the 32.00 strike Puts on WFMI for around .40 figuring with 5 days till expiration I could net the premium. The stock gaped down Wednesday morning to open at 30.00, the question is would the option be exercised at 32.00 strike where by I could then sell the stock short or would I have been exercised at the 30.00 open. Any comments would be appreciated.
you sold the 32 strike option. wednesdays open @30 is irrelevant.
Quote from rosy2:
you sold the 32 strike option. wednesdays open @30 is irrelevant.
Thanks for the reply, so I would be exercised at 32 and own the stock at that price, where by I could then sell short the stock and my gain would be the difference from the 32 strike to it's current price correct?
You sold a put @ 32 Strike .... if the underlying is at 30 and you get excercised, then you loss is $2.00 - Premuin you received ....
No matter how you look at it you lost some money .....
No matter how you look at it you lost some money .....
What happens now is that you can get excercised if you did not close your short puts. By excercising, you will now own WFMI shares bought at $32. With WFMI now at $30, you would automatically lose $2 per share after owning the shares.
Does that clear things out? Remember, you sold puts at $32. In other words, you wanted to buy the shares at $32. Selling short puts is the same thing as buying calls (just in a different format). In the end, you really wanted WFMI to go higher so that you could keep the premium collected.
It just so happens that this position backfired. You should have sold out and took your loss rather than use more capital to own the shares and possibly lose even more. Ouch. Hope you see the picture.
Optiontrader
Does that clear things out? Remember, you sold puts at $32. In other words, you wanted to buy the shares at $32. Selling short puts is the same thing as buying calls (just in a different format). In the end, you really wanted WFMI to go higher so that you could keep the premium collected.
It just so happens that this position backfired. You should have sold out and took your loss rather than use more capital to own the shares and possibly lose even more. Ouch. Hope you see the picture.
Optiontrader
Quote from Trinitytrader:
Thanks for the reply, so I would be exercised at 32 and own the stock at that price, where by I could then sell short the stock and my gain would be the difference from the 32 strike to it's current price correct?
after the exercise, the broker gives you the stock, then takes $32 out of your account.
you own the stock.
the stock cost you $32.
you received $0.40 premium from the option. Therefore your net cost is $31.60
(disregarding commission and exercise cost for the moment.)
now the stock is trading at $30.
you can do whatever you want with it.
1. you can keep the stock and hope it will go up.
2. you can sell the stock to recoup some money, but you are not selling it "short" because you have the physical stock (so to speak.)
Quote from optiontrader:
Selling short puts is the same thing as buying calls (just in a different format). In the end, you really wanted WFMI to go higher so that you could keep the premium collected.
Misinformation! Selling a naked put is not anywhere CLOSE to the same thing as buying calls. (except that both positions result in you being long delta). You have opposite positions on all the other risks. A naked put makes you short gamma, long theta, and short vega vs a long call makes you long gamma, short theta, and long vega. You'd be long rho in both cases, but for a 3 day to expiration option that's pretty much irrelevant.
But to the OP (I may be a bit late on this seeing how expiration is today)..
But on Wednesday, you could've:
- Held the option position. BE READY TO TAKE ASSIGNMENT. There are people who will exercise puts that are 7% ITM a day or 2 early.
- Close out the option position at a loss.
- Offset your position by short selling the stock, so you will be flat after the anticipated assignment.
If you have done nothing, expect the following to happen to your account on Monday for each contract you sold:
- debited for $3200
- credited with 100 shares of WFMI
Quote from Tums:
after the exercise, the broker gives you the stock, then takes $32 out of your account.
you own the stock.
the stock cost you $32.
you received $0.40 premium from the option. Therefore your net cost is $31.60
(disregarding commission and exercise cost for the moment.)
now the stock is trading at $30.
you can do whatever you want with it.
1. you can keep the stock and hope it will go up.
2. you can sell the stock to recoup some money, but you are not selling it "short" because you have the physical stock (so to speak.)
Thanks I believe I've got it, like I said this was not a trade I made I was just looking at it on Monday as a possible short term premium play.