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American Capital Agency Corp. Message Board

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  • igsteri igsteri Oct 31, 2012 7:18 PM Flag

    Bull Put Spread

    p.s. Doc, on a spread like that, if there is a flash crash will the short put of the spread be assigned to you?

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    • Igster We have talked about this at length(long, long discussions) in the past and the short answer is, yes. The danger is if you have insufficient funds to buy the shares, your brokerage can( there is the rub....depending on the size, history, and level of your account, and discretion of your broker), close out your position, once assigned. Then the market can zoom back up and you are sitting on a big loss.

      If you have the cash, you will never lose more than the difference between the strikes, minus the credit for the spread.

      Moral, never short more contracts than you can cover. That's why I don't short AAPL or GOOG. 100 contracts is 6 million to cover @ 600/share.

      Best,

      DocReits

      • 2 Replies to reits_r_us
      • Thanks Doc,

        Indeed I recall our conversations on the risks of assignment which appears to be identical with both Short Put and Bull Put Spreads. In a flash crash they are equally exposed to assignment or liquidation.

        If the Bull Put Spread with the 33/32 gives about .50 credit while the Dec33 Short Put outright gives credit of about 1.5, wouldn't the Short Put Strategy be the more lucrative strategy?

        With both scenarios you need 33+ so the Put/s expire worthless and you keep the credit.

        I hope this is not a dumb question, but I wonder why you chose the spread vs. the short put outright?

        I'm learning options and I find options strategies fascinating :)
        Igster

      • I sell puts on GOOG and AAPL alot....but NEVER 100 contracts. Each AAPL contract is nearly the same as 20 AGNC contracts....

        Jones

 
AGNC
19.13-0.11(-0.58%)Aug 31 4:00 PMEDT