You only sell naked puts on stocks you dont mind to own, in case you get put on. Obviously Sam feels at 8.02 LGND is a name he doesn't mind to own.
You can, however, opt to cover your puts by buying it back. (at a loss may be, if the initial basis for owning the stock no longer exist).
Yes, your upside is cap and you downside is the net cost to zero.
No, you do not own the stock. You only own the stock when the stock is put to you at the strike you sold at. That only happens when : 1) stock collapses, and stock put to you before the option expiry. 2) at option expiry stock closes at or below the strike and you choose not to close your puts.
for that reason, some people prefer to buy calls than short puts.
otoh, one can make an above market return this year by selling naked MSFT puts each month.
To give you an example, I sold August AMAT 16p for 0.65 just before it fell thru 16 to 15.4 eventually. The same put went up to 0.95 fwiw. Anyway, I chose to close the put before AMAT reported, at 0.15 as I did not want to chance AMAT earning. For a couple days, it looked as if AMAT would close below 16. Even on the day of expiry, last Friday, AMAT was at 15.8 or so intraday. It eventually miraculously closed above 16. Should my puts still open, and AMAT closed at 15.8, I would be put at 16, (obligated to buy AMAT at 16) however, my true cost is 15.35 because I have the 0.65 prem. Even if AMAT close right at 16, I still have a chance to be put at. Brokerages usually have a 0.05 buffer on both put and call sides to decide if you are being put at, (assigned) or being called (in the case you sold call.)
NVLS midQ on Thursday close. There may be another chance to sell puts on semi names again at oversold prices. |
