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Selling Put Options

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Hello, has anyone done this?

 

As I want to increase my exposure to precious metals anyway, I thought why not do it through writing put options.. I think I understand the theory, I write and sell the option and receive the put premium, and then may then be obligated to meet (ie buy the asset) if the strike price is met, which is OK as it will be a discount to current price anyway.

 

Trouble is I don't really know if it's feasible (is there a minimum contract amount?). And also, I have no idea which brokers offer this service.

 

Can anyone make some suggestions/recommendations?

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You need to have sufficient margin, in case the Put is exercised against you

 

If $120 strike x 1 ct = $120 x $100 = $12,000, needs 30-50% of that, I believe

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thanks DrB..

 

There seems to be a huge disconnect between the articles I read and the exact steps that are required to do.

 

Am I making this more complicated than it needs to be?

 

Could I get the same effect by going short (ie sell) a naked put, eg sell an out of the money spreadbet option?

 

So if the strike price isn't met the value of the option falls to zero, and I get to pocket the premium x bet size...

 

.. and if the strike price is met then I will obviously be out of pocket in my trading account, but will then be able to buy the metal cheaply as the market price will have fallen.

 

 

The problem is that City Index's "options" bet sizes are £2.08per point, with a strike price of eg "12,000" (which I presume equates to $1200 gold).

 

So that means I would be have £24,960's worth of exposure.. which way beyond sleeping point.

 

So if gold fell by 10% below strike price at expiration (10800) I would be liable for -1200 x 2.08 = -£2496.

 

The market price of gold would be $1080 and I would buy the equivilent of £22464's worth of gold, in effect "locking in" the $1200 price for the same amount of gold.

 

Is my maths correct here?

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It depends on the terms of the Put.

 

If it can be exercised against you:

Then, you may be exposed to: Strike Price x the Size of the Contract.

If that is about to happen, and you are not happy with the exposure,

then you might buyback some or all of the Put you sold.

 

But be careful, especially if it is an "american-style" option that can be exercised at any time

 

Other options that are cash settled, and your account will get debited for the amount the option is in the money

at maturity

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thanks DrB..

 

There seems to be a huge disconnect between the articles I read and the exact steps that are required to do.

 

Am I making this more complicated than it needs to be?

 

Could I get the same effect by going short (ie sell) a naked put, eg sell an out of the money spreadbet option?

 

So if the strike price isn't met the value of the option falls to zero, and I get to pocket the premium x bet size...

 

.. and if the strike price is met then I will obviously be out of pocket in my trading account, but will then be able to buy the metal cheaply as the market price will have fallen.

 

 

The problem is that City Index's "options" bet sizes are £2.08per point, with a strike price of eg "12,000" (which I presume equates to $1200 gold).

 

So that means I would be have £24,960's worth of exposure.. which way beyond sleeping point.

 

So if gold fell by 10% below strike price at expiration (10800) I would be liable for -1200 x 2.08 = -£2496.

 

The market price of gold would be $1080 and I would buy the equivilent of £22464's worth of gold, in effect "locking in" the $1200 price for the same amount of gold.

 

Is my maths correct here?

Writing the put is effectively a bet the share will rise/stay flat.You could limit your exposure by buying the call as opposed to writing the put.

 

If you go to

https://www.theice.com/marketdata/reports/166/product/8434/hub/11842/isOption/false/isSpread/false

you can view the end of day report and have a look at the range of index and single equity stock options.

 

If I were you I'd wouldn't play the margin game.Over the years I've traded equity options but not recently.

 

I used to buy the shares and write the call and pocket the change.If I got exercised,it didn't bother me.I'd always trade stocks that were where I felt a fair value was,so if I got left with the stock I wouldn't be bothered.Which is why I currently don't do it.

 

BP are trading a tight range these days,

 

With writing puts,you have limited exposure through the very nature of it being a put not a call.But until you're used to the way the leverage can move,I would cover my positions 100% cash.

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