How I Saved My Trades

“I was PUT To”, you scream.  “What should I do now?”

Well. Let’s look at your options.  

I say this tongue in cheek. 

I know you are in pain right now and not ready for my awful puns.

But seriously, you do have choices. 

We need to examine all those choices before you dramatically decide your life is over and you will never trade options again. 

So keep watching to see how you can save your trades too.

Some of you are brand new to option trading.  First let’s examine why you got put to.

When you buy an option position, you have rights.  No one can force you to exercise an option position.  It is your choice as the buyer of an option.

BUY an Option – You have rights!

But when you sell an option position, you assume an obligation.

SELL an Option – You assume obligations!

If you sold a PUT, the obligation is someone can force you to buy the stock at the strike price.  

Hence PUT TO  is when the other side can put the stock to you.

If you sold a CALL position, the obligation is you can be forced you to provide the stock at the strike you bought at.  

Sold a $148 CALL .

Then stock went up to $153.45 per share

You have to buy the stock at the Market price

Your obligation is to provide the stock at $148

You lose the difference of $5.45

YOU HAVE BEEN CALLED OUT

The stock is CALL out at the strike price.  You are force to buy the stock at the current Market price and hand it over at the lower strike you sold.  You have a loss.  Not a lot of fun.

These situations are never pleasant for any trader with one exception.  You want to be Put to or Called out.  We will discuss that situation in a future video post.

Before I go on with a discussion of your choices when you are Put to, I want to let you know about a special deep dive we are doing on this week’s webinar session.  

The subject is how to spot and avoid getting put to or called out.  You can join this webinar for just $1 if you sign up below.

 Guys, I hate, hate, hate getting PUT to.  I have put a lot of energy and time to educate myself on how to avoid it.

Now back to the choices you have when you are PUT to a stock.  First know why the price dropped and your option is in the money.

Why the Price drop?

Stock Specific or the Market in general

If the reason is related only to the stock, you have to decide whether to stay or just unload the stock for a loss.  

An example of this is if a company had a very bad financial disaster and the stock was being sold off in a stampede.   I would dump it and go lick my wounds

If the reason is the whole market is in a downturn and that downturn has nothing to do with the stock, you might elect to stay in and let the market and your stock recover.  Then sell the stock without any loss

When you sell an option, generally you buy another position as protection.  

You can exercise that long position and lose only the difference in the two strikes.

But, my favorite choice is to begin to sell covered CALLS at the same strike you got put to.  

Let the price recover until the sold call is in the money and you are called out.  There is no gain or loss on the stock, but you get to keep the premium from selling the covered call.  You win.

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