How to sell works

How to sell works 

How to sell works? 

From the end of July and reader comments, I had a good exchange. He asked a good question, so I realized that there are more people may ask the same thing. In essence, he asked how not to sell put options work. 

Because put options, mainly short put is my trading model based on, I think it's worth a post of its own. In trying to understand why someone would buy a put option that people need to understand why someone would buy one. A put option buyer is buying the right to sell the stock at a predetermined price (the strike), at a predetermined time (expiration). The other side is what I do. I sell the right (ie, enter A Aœcontractâ of €??) To others forced me to buy the stock (distribution), before my contract expires, the price. 

Most IA € ™ manner which will be described based on equity was sold as a œnakedputsâ? ? A naked put option is a put option, which is not a € œcoveredâ? Before the stock short. Covered placed two sectors, one is to sell the underlying stock, you Donna € ™ t own, and then sell a man, then who has the right to sell the shares previously agreed price to you. This is not € ™ t my focus, so IA € ™ m only mentioned it as a reference point. 

Stick with me, it € ™ s not complicated than you imagine. Buyer is willing to pay to the seller (writer's contract) cost (premium), because she believes that the stock market may decline. She may buy insurance, she owns the stock, and will limit her loss, and if it did not fall, because she can sell it back to me no matter how high the price, we agree. If she is not Put ™ t buy insurance, she can buy it, because she thinks the stock is declining. Essentially, Shea € ™ s short stocks did not lose more money than she paid Put the risk if the stock price rises. 

Put sellers that stocks will be flat or float. If the put option selling price below the current strike, it is said to be foreign currency (OTM). Sell ​​put out money, which means the stock price fell, some do not seller took the loss. If the put option expires, and I put all the premium and do not buy the stock below the strike (aka money or ITM). Basically I sell high, not € ™ t even have to buy low, because it becomes worthless. Sometimes I would buy before the expiry to keep the stock assigned to me back. If I have timed well, I can buy it at a lower price than I sold it, even stockâ ™ price is lower than the contractâ strike. 

Sometimes the stock price fell before I had chance to get out of my position. That does not mean I have taken a loss. àstockâ € ™ prices upward and downward as you normally would not normally attract buyers before the expiry of the early distribution of shares to exercise their rights to me. Many buyers will hold their hope is that a larger gain (greater loss for me), or they just want to keep the insurance in place, and picking direction. 

Allocate shares sometimes occur, such as strikes above the current price and the buyer stockâ that it may not be backed up. She will share assigned to me, forcing me to buy, and get her money from the stock at a higher price. She made a smart move, if you stay in the stock, the lower the price, she has cut her losses or save her profits. In this case, the put seller, I made the decision that if I want to reduce my losses and sell the stock losses, holding, and hope it rallies or hold stocks and write covered calls can be , and thus further reduce the cost of my. Sales (write) a covered call, I sold the rights of others from me to buy the stock at a predetermined price. (Covered call options will cover in another article.) 

If the buyer the option to use the insurance, she may sell her to someone else to sell me on the open market equity holdings, as it rallies. In this case, she can make money on both sides, options and the underlying stock. Put the seller can not be forced back into the purchase. Put sellers will be forced to buy the stock. 

I've made a wise move, if I have the cash available to buy shares to support and believe that stock price will rebound. If I think it is destined to stock fall more, I've bought have been put back until fell faster than I could react.