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That’s Teddi’s trade! I just waited a little for ex divvy day, and hope it’s close to the low, but hard to say!
AmySTO JUNE STRIKE $72.5 @ .79
Amy
STO Jun 31 puts for 0.30
also don’t forget to check your brokers assignment fees. Brokers like IB don’t charge but most others I think do. Anywhere from $25 to $50…good to know so you can factor that into your results
ChrisKen… I don’t think Teddi’s article was about trying to rescue an assigned stock.
It was presented as a method of making a small profit and having your capital tied up for a very short amount of time.
These type of trades appeal to me and there should be lots of them available since optionable stocks are going ex dividend all the time.
The issue is to understand why they work and how to pick the possible good trades from the bad ones.
JakeThat is an excellent question.
Tom
Hi Pablo…..I have been interested in this type of trade for a couple months now and have actually done a couple.
The problem I have is I can’t figure out why they work the way they do. I want to know how the guy on the other side of this trade is making money.
For example, if we assume the price of your GM stock stays at $35.32 all the way to June 8th….the guy starts by buying your call for $1.65. Then on June 5th, he buys your shares for $34.00. So now he’s out $35.65. On June 8th, he captures the dividend of $.36 and now he’s only out $35.29.
On June 8th, the price of the stock drops by the amount of the dividend…..
$35.32-$.36=$34.96. So if his intent is to capture the dividend and sell the shares, he’s going to lose money. $34.96-$35.29 = -$.33 loss.
Can somebody straighten me out….this is driving me crazy.
JakePablo….Your understanding of this strategy is the same as mine… Need a scanner, screener, filter program of sometime to locate these trades, but I am searching and will pass on any prospective trades I locate. The ones in AFL and the other (name escapes me) sounded logical. Clearly, however to locate and set up these trades may take a little number crunching…..I’m looking
MikeJust to be sure – did you SELL the puts or BUY the puts?
Jack Follick
I would say “Yes, you are missing something”.
The Put sale contract you entered into obligates you to Buy 300 shares at a price of $123 IF the stock is in the money at expiration. If the price is above $123, the contract expires worthless. At no time do you have the right to force the holder of the contract to sell you the shares at $123. You, on the other hand, can be forced to buy the shares at $123 if the holder of the contract exercises the contract, which normally would only happen if the contract is in the money.
No matter what happens, you get to keep the premium you got for selling the puts. The possible outcomes are:
1 – prior to expiration, you buy back the contract at a profit or loss depending on the current put price.
2 – at expiration, AAPL price >= 123, contract expires.
3 – at expiration, AAPL price < 123, contract automatically exercised and you get assigned 300 shares @ $123. On Monday morning, you will have 300 shares of AAPL in your account that were sold to you @ 123. Your cost basis for those shares will be 121.97.
(ignoring exercise to capture dividend scenario)
see https://www.optionseducation.org/tools/faq/options_assignment.html
Let us know if you have more questions.
TobyTO Ken.
Yes, TDA does a great job of tracking cost basis and tax reports…As a CPA, I have found their integration to my year end tax work very good and accurate. I’m not too familiar with other brokers except ETrade and will suggest that TDA is a cut above that one and meets my needs and standards very well. Good luck!
Mike Pollard