Need help about put option I sold!

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Stock Investor
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Joined: Tue Aug 30, 2016 9:54 am

Need help about put option I sold!

Post by Stock Investor » Wed May 17, 2017 10:29 pm

I wanted to buy 400 shares of SPY so I decided to have some fun and sold a put option of 4 contracts of SPY at 239 for May 19th. Thought it would be a good way to learn more about options.

I thought the option would have given me the stock at 239 if it dropped there but it seems on tdameritrade that I still hold the put option and it is at a hefty loss now.

Will Tdameritrade ever convert that option into SPY, or must I cover that option and buy SPY?

I do know that Tdameritrade has deducted $95,600 from my margin balance, but I have cash in TDameritrade to cover the 400 shares.

Thanks on how I should best deal with this as this was the first option I ever sold and not sure how it all works.

taojaxx
Posts: 53
Joined: Wed Jul 18, 2012 8:25 pm

Re: Need help about put option I sold!

Post by taojaxx » Wed May 17, 2017 10:41 pm

Smart way to buy stocks on discount!
Here's an answer to your question:
https://www.optionseducation.org/tools/ ... nment.html
Call TDAmeritrade for more as needed

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TheTimeLord
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Re: Need help about put option I sold!

Post by TheTimeLord » Wed May 17, 2017 10:41 pm

What is a 'Put Option'
A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

BREAKING DOWN 'Put Option'
A put option becomes more valuable as the price of the underlying stock depreciates relative to the strike price. Conversely, a put option loses its value as the underlying stock increases and the time to expiration approaches.

Read more: Put Option http://www.investopedia.com/terms/p/put ... z4hOkR2cuz
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hollowcave2
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Re: Need help about put option I sold!

Post by hollowcave2 » Wed May 17, 2017 11:08 pm

You really don't have to do anything. If SPY is below your strike price on the expiration date, you will buy 400 shares of SPY at 239. Covering before the expiration will require you to buy back time value that will simply evaporate with time. I would avoid that unless you believe that SPY at 239 is a bad deal.

When you sold the option, you implicitly believed that buying SPY at 239 was acceptable and that you have confidence in that position. If you buy the shares and continue to have confidence in the position, you can also sell covered calls to recoup some of your cost. So you might also want to learn about covered calls.

But as you can see, options can get kind of interesting. Many people like dabbling with these but many others (probably most on this board) don't like complicating matters. Bogleheads are a group that play it simple and let the indexes take care of themselves.

So, short answer, you don't need to do anything.
Panicking about the position won't make you money. Learn about it and use this opportunity to see how you like options.

av8r316
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Re: Need help about put option I sold!

Post by av8r316 » Wed May 17, 2017 11:12 pm

Stock Investor wrote:Will Tdameritrade ever convert that option into SPY, or must I cover that option and buy SPY?


Assuming SPY stays under 239 through Friday, this will almost certainly be automatically exercised on Friday, but could be exercised anytime between now and expiration. Technically, a holder may choose not to exercise even if it's in their economic interest to do so, but they would need to advise their broker not to automatically exercise the in-the-money option.


Stock Investor wrote:I do know that Tdameritrade has deducted $95,600 from my margin balance, but I have cash in TDameritrade to cover the 400 shares.


TDA is obligated to deliver the cash to the holder upon exercise, and they've deduct the cost from your available margin balance to make sure you honor your obligation to pay them the same (400 shares x $239/share = $95,600).

Stock Investor wrote:Thanks on how I should best deal with this as this was the first option I ever sold and not sure how it all works.


Assuming you still want the 400 shares, you should do nothing. You'll keep your option premium, and own 400 shares at $239 each.

Assuming you no longer want the 400 shares, you should buy back the put options. You'll keep your option premium, but then pay somebody else to buy your obligation. At today's closing price, the cost to buy back all the options should be around $1,272 (($239 - $235.82) x 400 shares).

Stock Investor
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Re: Need help about put option I sold!

Post by Stock Investor » Fri May 19, 2017 3:10 pm

Thanks guys for the responses I thought I had this figured out but it is now 4:08 PM and my May 19th put options I sold have expired.

I thought I would have 400 shares of SPY at 239, but it isn't showing this.

Is there a certain time that this assignment happens?

Thanks.

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market timer
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Re: Need help about put option I sold!

Post by market timer » Fri May 19, 2017 4:32 pm

Your options expire tomorrow. Today is the last day they are traded. Expect to have 400 shares in your account tomorrow or Monday morning at the latest.

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