Sold New DIA Puts
With the markets taking another dive today I bought my original naked puts back for a profit this morning since I expected the fall to continue through the day and now that it’s down deeper I decided to get back in at a lower strike. I do not claim this is a bottom, but do think I am making a fairly safe trade since I own two December 84 puts which will stop my losses if DIA falls deeper than $75.00 before November options expiration.
While DIA was trading at $86.19 my limit order hit and I sold to open two DIA November 75 puts (DIJWW) for $2.10 each and received $408.50 after commissions. The only way these puts come into play is for DIA to fall below $75.00 before at expiration which would make more DIA December puts a profitable trade. Ideally DIA closes at November expiration close to $75, but above it. This would allow me to take a full profit and let me write new puts for December expiration, still with the protection of my December 84 puts. A more profitable trade could have been to trade at a higher strike, but that would give up too much of my hedge I like to have in times like this when we’re heading back down to retest the lows of earlier in the month.
Comment by Mark
Alex,
What are the chances of being assigned for Nov puts if the stock is 2% below the strike?
Mark
Comment by Alex Fotopoulos
It’s an extremely small chance I’ll be assigned early if the ETF is only 2% below the strike, but if it’s more than $0.01 below the strike at options expiration there’s nearly a 100% chance of assignment. TD Ameritrade says any position more than one cent in the money will be assigned, but I’ve had positions more than that not get assigned twice in the past eight years. I’m not expecting that again as it might have been a random glitch.