19 lines
1.1 KiB
Plaintext
19 lines
1.1 KiB
Plaintext
Sell Put
|
||
Selling a put has many similarities to the covered call strategy. We’ll
|
||
discuss the two positions and highlight the likenesses. Chapter 6 will detail
|
||
the nuts and bolts of why these similarities exist.
|
||
Consider an example of selling a put:
|
||
Sell 1 BA January 65 put at 1.20
|
||
In this example, trader Sam is neutral to moderately bullish on Boeing (BA)
|
||
between now and January expiration. He is not bullish enough to buy BA at
|
||
the current market price of $69.77 per share. But if the shares dropped
|
||
below $65, he’d gladly scoop some up. Sam sells 1 BA January 65 put at
|
||
1.20. The at-expiration diagram in Exhibit 1.5 shows the P&(L) of this trade
|
||
if it is held until expiration.
|
||
EXHIBIT 1.5 Boeing short put.
|
||
At the expiration of this option, if Boeing is above $65, the put expires
|
||
and Sam retains the premium of $1.20. The obligation to buy stock expires
|
||
with the option. Below the strike, put owners will be inclined to exercise
|
||
their option to sell the stock at $65. Therefore, those short the put, as Sam is
|
||
in this example, can expect assignment. The break-even price for the
|
||
position is $63.80. That is the strike price minus the option premium. If |