October 30, 2008
Can I buy puts of a stock without having the actual shares?
Ivan K. asked:
I’m looking at SQNM and I don’t know what the move will be. I want to buy calls and puts at the same time and will realize any profit instead of buying the shares before expiration date.
I’m looking at SQNM and I don’t know what the move will be. I want to buy calls and puts at the same time and will realize any profit instead of buying the shares before expiration date.
The stock is currently trading at $21. I want to buy 100 calls and 100 puts but I don’t have enough money to buy the actual shares before expiration date. Can I use “sell to close” to realize any profit instead of buying the shares?
Thanks.
Filed under Investing by Administrator
Comments on Can I buy puts of a stock without having the actual shares? »
Yes, you can close out the trade by “selling to close”
Most options traders NEVER exercise the options, because of the capital required to take delivery of the shares.
You sure can. Trading naked options is a great way to double your money in a couple of hours. You can also lose your shirt.
I do sell puts. I sell a put on a $21 stock at the 20 strike price for say 1.50 ($150). If on expiration day the stock is above $20 I keep the 150. If it drops below 20 I have effectively bought it for $18.50. My broker requires me to keep the $2000 in margin. Not a bad way to make money. 80% of all my puts expire and I walk away with money. Once in awhile I get hosed like AMD a year or so ago. Don’t put all of your eggs in one basket. Or like I would do today buy a 15 put for say .25. It is cheap insurance.