Your concept is great Roy, but the math is a little off. Here are some corrections:
Scenario 1) PPS 35.00 @ OPEX. You owe the buyer of the 37 Put 2 bucks so your profit is 4.50.
Scenario 2) Common error is that the shares are Put to you at the strike price of 37.00 not the current PPS of 30.00. So you are long the shares @ 37.00 and if the PPS goes back to 35.00 you lost 2.00/share, but you get to keep the 6.50 premium so your profit is 4.50 again. Not bad!
If the PPS stays @ 30.00 you are down 7.00/share and up 6.50 for a .50 loss, still good odds on this trade. I placed my GTC order a couple of minutes ago.
Forgive me, I'm a beginner.
How do we know when the ex dividend date is in relation to the expiration of the option?
Do you need to keep 37 dollars per share in your account in case the option you sold is exercised?
It is likely that the $37 Put will finish in the money. If the stock price falls below $29, you will also need to exercise the put you bought. Regardless, you will likely be assigned shares at $37, and will then likely want to unload them at market if the price is above $29 or exercise your put if it falls below. How does this all work? Are you actually selling the shares that are assigned to you from the $37 put? Back to my second question- thats a lot of cash to have available in your account.
I posted a reply today but I don't see it. I hate this Yahoo format...grrr!! Let me know if you see it on your screen. I might be repeating myself but here goes.
""How do we know when the ex dividend date is in relation to the expiration of the option?""
Best guess from historical EX dates. So no one knows, we best guess. Go to AGNC's website for historical dates. The MM's believe it will occur on or B4 Dec 21st since the Dec Puts are priced with the EX occurring B4 OPEX.
""Do you need to keep 37 dollars per share in your account in case the option you sold is exercised?""
You can always be assigned the shares so it is best to have the cash buying power in your account to purchase. Having said that, with a spread your margin requirement is only the difference between the strikes minus your credit x the number of contracts x 100. So if you have one 37/30 spread @ 5.00 credit, you are required to have $200 margin.(37-30-5)(1)(100).
"""How does this all work?"""
Exactly as you described...;-)
""Are you actually selling the shares that are assigned to you from the $37 put?""
Yes, or keep the shares and ride them up to the day B4 EX and sell.
""Back to my second question- thats a lot of cash to have available in your account.""
A "lot" is relative. 10 contracts is 1000 shares. $37,000 would cover and usually you only need to have about half of that since you can purchase with margin, so $18,500. If that is a "lot" then you should not short options. Most brokerages want you to have 25,000 in your account to short naked options anyway.
You can always use spreads as I mentioned which reduces your margin requirement a "lot"....;-)
'''Apologize in advance for my novice questions''
No problem...we all start at the beginning....:-)
Good luck and I hope the Yahoo censors allow this post,