>> You took in some cash buy writing the puts...it goes up ( above strike price) and you have the cash you got for writing the puts, you keep your stock and the gains.......stock goes down, you still have whatever cash you got for selling the puts but if it closes lower then strike price, you lose the stock and take a loss( sell stock {called away} which would be the difference between the strike price for the puts you wrote and the current PPS..... Is that not correct?
Not quite :-). Writing puts has nothing to do with stock that I already own. I wrote qcom puts, so...
If qcom stays at or above the strike price (in this case, 35), I keep the fee I receieved for writing the put, which was 1.20 per share.
If the stock goes below the strike price of 35 per share, the person who bought the put has the right to force me to buy his shares of qcom at 35 per share... even if the stock is at 10 per share at that time. In that case, my net cost for those shares would be 35 minus the 1.20 fee I received, which comes out to 33.80 per share.
I wrote the put because:
1. The expiration date for the option is October 20. I'm optimistic about qcom's price over the next two weeks, as I believe the stock has bottomed out, and that there will be some positive momentum in anticipation of a good earnings report on November 2.
2. Even if the stock goes down and I'm forced to buy it, I'll be happy to add shares at a net cost of 33.80. If you check historical prices, you'll find the last time qcom dipped below 34 was July 2005.
Hope that helps.
duf |
