The Bear's Rave Party

[crazy_ate]

Anybody else locked out of the site with a "too many connections" error message?

 

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Me too...took 3 minutes or so to get on

[Dr Bob Poodit]

I would think that whoever gave you that piece of info is mistaken. If you can't exercise it, then it's not an option, is it? What would give it its value?

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Wouldn't be the first time I'm wrong.

 

The devil may be in the terms. With an option, I understand you can have three choices: expiration, cancellation, and exercise. To your question above, cancellation would provide the value where you capture the difference between current value and price paid.

 

I may be mistaken, but I think exercise only works for calls. For people who have no margins but have options privileges (most IRA accounts with option privileges), exercising the put for a short margin wouldn't be possible.

 

There's plenty of differences between puts and calls. You can't write covered puts, and the dividends on options are deducted from calls, but not puts.

 

Again, I may be wrong. But I just don't think you can exercise puts. You can cancel them for profit or let them expire worthless.

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Somebody has to be able to write covered puts.

 

Where did you get this information. It just doesn't seem right.

 

I would think that for sure puts can be exercised. The potential for exercise is what makes it an option by definition. If it can't be exercised, it's not an option.

 

As for not being able to write covered puts, that doesn't seem right either.

 

But I am definitely not an options guy.

 

Any brokers out there can set us straight?

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There are two kinds of options European and American (Nothing to do with location) . European's are usually cheaper because they can only be exercised at expiration. The vast majority of options traded on stocks in the US are American options, they are more valuable because they allow the holder to exercise the option at anytime. Once in a while you will come across the odd ball European option on a US listed stock.

 

The buyer of an option does not have any obligation to own shares against those options. Therefore when a put owner decides to exercise, the broker will locate the appropriate number of shares and "put" them to the person short the put option. The put option is then canceled- both legs of the contract are executed. The former put holder is short stock at the contract price and the original put seller is now long stock at the contract exercise price. This is the exact same process that occurs the day after each expiration. If you hold American options you can initiate the process at will.

 

This is also the reason that high put:call ratios can cause crashes: How would you like to have 1000 Spoo puts exercised against you at 1450 this morning?

[DrStool]

A put is a right to put the stock to the put writer. When a put is exercised, the buyer/holder of the put, "puts" the stock to the seller/writer. The exercise is the act of putting the stock to the seller of the put.

 

It is likely that more often than not the seller/writer of the put, is in fact covered by being short the stock.

[potatohead]

=WSJ: Sudden, Sharp Decline In DJIA Around 3 Due To Tab Delay

 

By Scott Patterson

Of THE WALL STREET JOURNAL

 

 

NEW YORK (Dow Jones)--The sudden, sharp decline by the Dow Jones Industrial

Average shortly before 3 p.m. Tuesday was triggered by a tabulation delay by

Dow Jones data systems, which calculates the average.

 

There was a temporary lag in calculation of the 30 large-stock average due

to a surge in order flows as the market continued to tumble in afternoon

trading, much like a clogged pipe. Shortly before 3 p.m. Eastern, Dow Jones

Indexes switched over to a backup system to calculate the average, which

nearly instantly registered the huge move.

 

(This story and related background material will be available on The Wall

Street Journal Web site, WSJ.com.)

 

The glitch wasn't the cause of the decline, but it did cause the drop to

register far more quickly than it otherwise would have. Other indexes fell at

the same time, but more gradually. Some traders noticed a discrepancy between

futures contracts tied to the Dow industrials and the index, which directly

tracks the stocks. Usually, the futures contracts closely track the overall

average.

 

"There was a huge disconnect between the Dow futures and the Dow average" of

about 200 points, said Brian Williamson, an equity trader at Boston Company

Asset Management.

[crazy_ate]

[elh]

Thanks CA & Dr. Bob. Some follow up questions. Yes, no, or single-word answer would do.

 

1. Do you guys make a distinction between cancellation and exercise?

 

2. If I had 100 shares long and had puts on those, could I close both out in one atomic transaction? Or would it be two?

 

3. Drano's question. Can it be converted into a margin short position?

 

Thanks.

[bigsky]

DECK up AH on earnings, up $3 or so from the close

[Drano]

Thanks CA & Dr. Bob.  Some follow up questions.  Yes, no, or single-word answer would do.

 

1. ....

 

2.  ......

 

3.  Drano's question.  Can it be converted into a margin short position?

 

Thanks.

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Wouldn't this be an interesting way to be able to short stock, not on an uptick? Hmmmm.

[cwd]

I would think that whoever gave you that piece of info is mistaken. If you can't exercise it, then it's not an option, is it? What would give it its value?

563606[/snapback]

 

 

Wouldn't be the first time I'm wrong.

 

The devil may be in the terms. With an option, I understand you can have three choices: expiration, cancellation, and exercise. To your question above, cancellation would provide the value where you capture the difference between current value and price paid.

 

I may be mistaken, but I think exercise only works for calls. For people who have no margins but have options privileges (most IRA accounts with option privileges), exercising the put for a short margin wouldn't be possible.

 

There's plenty of differences between puts and calls. You can't write covered puts, and the dividends on options are deducted from calls, but not puts.

 

Again, I may be wrong. But I just don't think you can exercise puts. You can cancel them for profit or let them expire worthless.

563619[/snapback]

 

Somebody has to be able to write covered puts.

 

Where did you get this information. It just doesn't seem right.

 

I would think that for sure puts can be exercised. The potential for exercise is what makes it an option by definition. If it can't be exercised, it's not an option.

 

As for not being able to write covered puts, that doesn't seem right either.

 

But I am definitely not an options guy.

 

Any brokers out there can set us straight?

563633[/snapback]

 

 

They can, in fact I have had them exercised on me. You have to pay a commision for closing out the option and if I remember right , I did not pay one to open the short position. I was told that they can settle the option in cash when the option expires.

[robin hoodlum]

made back everything today, couldve been more had not the bullphoria gotten to me a bit.. Im really enjoying the bull foot in mouth disease outbreak today. eff em all, the (original) stool lives, long live the stool! welcome back my friends to the show that never ends. Today is what pearl harbor must have felt like from the Japanese side of things. oh well............ michelob anyone...........

[cwd]

Not a bad print...i saw it live.

 

They were spraying them like bullets...

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All the stops were run.

[crazy_ate]

just remember....sometimes the best trade, is not to trade at all.....my best trades of the year thus far are those that I stopped myself from doing, saved me $50,000 easy based on today's action

[I_Am_Madness]

Looks like Russ hit a few homeruns...again, congrats.

 

Some of these DIA puts are up over 1,000% today.

[Dr Bob Poodit]

A put is a right to put the stock to the put writer. When a put is exercised, the buyer/holder of the put, "puts" the stock to the seller/writer. The exercise is the act of putting the stock to the seller of the put.

 

It is likely that more often than not the seller/writer of the put, is in fact covered by being short the stock.

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That is concept behind delta hedging. Buy a cheap call/put short/long stock against it.

 

On a day like today the short leg gets fat while the call evaporates. You cover with a profit. If the market goes against you you exercise the call and close out your short with a defined loss or a gain if you work out of the money calls.

 

Not so easy to delta hedge puts.

 

Most call selling is done by mutual frauds and income funds. They sell cheap options against long positions to goose their returns. Today they got butchered. They cannot sell their holdings without first covering the short option. So they must delta hedge by buying puts, very expensive, or shorting futures. Either way their core long position continues to go down. Definition of picking up nickels in front of a steam roller.

[robin hoodlum]

that which does not kill me........ if bully couldnt take me out with that 6 mo.move they gonna needs a thousand point two day space needle next time. the way i see it i am probly flat along with many late to buy and yet to sell bulls after today, except im tghe one laughing today. liquid and no calls from margin man.... bring it on girlie bulls...........spread the stool baby......