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  • sbrown101750 sbrown101750 Oct 25, 2012 10:35 PM Flag

    OT: Doc question about WMC short puts

    o You could do nothing & be assigned the shares if the price falls below the strike price. If assigned, you could sell calls against your long stock to try to recover any losses from your original position.
    o You could buy back your puts and take a loss
    o You could buy back your puts and re-sell lower strike puts, or roll them out to a another month at the same or different strike

    As a suggestion, I would not sell naked puts. You never can tell what will happen, and with naked puts you are exposed to losses down to the point where the stock is worthless. Instead, use put credit spreads. With put credit spreads, your potential return will be slightly less, but your downside potential loss will be limited. A lot of people will tell you that you don't have to buy protective puts below your short puts, but they are foolish, If we happen to have some terrible event, like a financial meltdown or terrorist event, you will find it extremely difficult if not impossible to get an order through to exit your position. Selling a put spread with protective long puts is cheap insurance.,

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