Comments on: Alcoa (AA) Naked Puts, again

By: How Put Selling Works, Part 1

How Put Selling Works, Part 1 — Wed, 05 Sep 2007 14:28:05 +0000

[...] I had a good exchange with a reader in the comments of a post from the end of July. He asked a good question that made me realize that a lot more people are probably wondering the same thing. In essence, he asked how does selling puts work. [...]

By: Pete

Pete — Mon, 03 Sep 2007 04:16:49 +0000

Thanks! I learn a lot from your blog and look forward to reading more!

By: The Trader

The Trader — Mon, 03 Sep 2007 01:34:08 +0000

American puts. The buyer would have lost money if he had excercised them as the underlying stock came back above the strike. I rarely have a put excercised unless it’s well out-of-the-money and doesn’t look like it will rally. For example, the morning after an options miss. In this case, AA was down some with most of the market, but to be so far from expiration wouldn’t have been wise for him. It would have been great for me though. I would have kept my premium and owned the stock and made even more on the rebound it’s had.
It’s not a bad question at all. The holder (buyer) cannot make me buy them back, but he can FORCE me to buy the stock, which I would have been happy to do at a discount. Most puts are excercised at expiration. I’m not sure of an overall percentage of all puts, but for all the puts I’ve been assigned 95% didn’t happen until expiration day. I ended up being long (owning) the stock and kept the premium.

By: Pete

Pete — Mon, 03 Sep 2007 01:23:22 +0000

Are these Euro puts or American puts? Sorry for my lack of knowledge, but if they are American puts, wouldn’t the holder want to exercise the puts and make you buy them back?

By: The Trader

The Trader — Fri, 31 Aug 2007 11:44:47 +0000

Pete, I don’t own any shares of AA and have only sold puts and calls on it this time around and those options are still short. That means that if the options expired today, I’d have $318.50 from the puts listed above and $138.50 from when I sold 2 Sept 40 naked calls which I wrote about here – http://mytradersjournal.com/stock-options/2007/08/15/cboe-vix-finds-recent-highs/.
I will have 100% profit if AA closes at expiration between 35 and 40. Before I take a loss, AA will have go higher than 42.28 or lower than 32.72. That’s the total of the option premiums plus and minus the strikes on either side.

By: Pete

Pete — Fri, 31 Aug 2007 04:05:33 +0000

First time commentator. Seems like this stock dropped below $35 during the timeframe of your put. Just curious the pnl on that trade. Thanks.