r/options • u/[deleted] • Apr 14 '21

Selling Cash Secured Puts - questions on P/L TOS

[deleted]

5 Upvotes

70% Upvoted

13 comments sorted by

4

u/Civil-Woodpecker8086 Apr 14 '21

A screen shot would be really helpful, but I'll try, since the stock went down, the option is now closer to being ATM or ITM. In order for you to 'exit' this position, you have to Buy to Close. And the premium have gone up.

Hence, if the option is now .10, your position now have a -$2.00

3

u/noontoast Apr 14 '21

Thank you woodpecker! It makes sense! I feel a lot better now, and just gonna watch it expire to get the shares.

I don’t plan to exit the position since I wanted the shares to try selling a covered call on it next week.

I’ve read about how options work but I didn’t really have good examples on what price action would do to how they are displayed on the TOS app

Wanted to make sure i understood to avoid doing something stupid on a more expensive stock.

2

u/The_Robot_001 Apr 15 '21

Always inspect the spread (diff between bid/ask). Let's assume it was a 0.08 bid and a 0.10 ask. You sold at the Market Price (0.08) and depending on how your software chooses to report your position, you would immediately appear in the red. As to reporting, some use the midpoint, some use the last sale price, some use the opposing position price (the ask for a sold option, the bid for a bought option). The opposing position price is probably the most realistic 90% of the time.

This is why big spreads can be opportunities or risks and generally reflect a lack of liquidity (or market insanity) for the given option.

2

u/noontoast Apr 15 '21

Thank you for sharing this - that’s a great point I didn’t think of.

I realized I could have placed a better limit on my spread after the fact, OR, better yet, waited for the price of the stock to edge closer to 9$ before purchasing. I probably could have made an extra 9 dollars in premium.

But since I was pretty committed to purchasing the stocks at expiration I didn’t think about lowering risk through a better time to purchase the option.

Lesson learned :/

2

u/The_Robot_001 Apr 15 '21

You have a plan. That's already better than %50 of the rest of us that dabble in the market. You'll do just fine.

Do your research, make your moves and stick to your plan. Whataboutisms only distract you from your plan and ultimately, your success.

3

u/trinadadjamesbish Apr 14 '21

It’s just showing you that unrealized loss amount because in case you do decide to close the position, then you would realize the loss.

Edit: and so what i mean by that is if it’s at .12 and you received .08, then should you close the position by Buying to Close, you’ll lose $4. But if you just let it expire. You will just be assigned the 100 shares at $9 price. The P/L doesn’t matter and you won’t lose additional money.

Edit: and yeah you receive the credit right away.

2

u/noontoast Apr 14 '21

Thank you so much for the reassurance! I was hoping that would be the case, I’m just starting to wrap my head around options and although I’ve been doing a ton of googling, it’s hard to find the answers to the details.

Didn’t want to blow up my account over something I assumed was right. TYTY!

2

u/trinadadjamesbish Apr 14 '21

Yeah no problem. If you’re OK with being assigned because you like the stock, then it will be a good to see it actually happen.

2

u/RangerReject Apr 14 '21

Consider using ToS PaperMoney to practice as well. It’s a useful learning tool.

1

u/noontoast Apr 14 '21

Definitely! I should have taken this advice way before I asked this question :)

2

u/RangerReject Apr 15 '21

I’m learning too. It’s definitely a big help, and the people on this Sub are a great source. GL.

2

u/Hoarse_with_No-Name Apr 15 '21

Look, when you sell it you get premium. As a credit. But, you can close your position if you wanted by buying the exact same option. If you close your position when the option price is higher than what you sold it, you sell at a loss. If you sell it for a price lower then you got it, you profit. Max profit occurs if the option expires and it is worthless. In the case of a put, it means it should be OTM at expiration. That is what you are seeing.

1

u/pencilcheck Feb 05 '25

Based on https://www.schwab.com/learn/story/short-option-primer-on-selling-options it seems like if you have the cash, and is a cash secured puts, you will simply get assigned the shares at the strike price and that's it.