11-30-2018, 10:22 PM
(11-30-2018, 01:07 PM)Kerim Wrote: Yeah, but at the moment the put is sold, the stock was trading at, say, $31. When you sell the put, you're saying that you'd be comfortable buying at $30. So if you had instead not sold the put and just waited for your price, and bought outright at $30, you'd STILL ride the shares down from $30 to $28. In this case, you come out ahead for having sold the put, by the amount of the premium. Or am I not seeing it right?
In my opinion, these are the hard facts. Assuming "original" price of $31. Selling a put with a strike of $30. Stock being at $28 when you get assigned. No dividend payments during this time period. No trading fees or taxes.
Situation 1. You just decided to buy in at $31.
You spent $3100, it's now worth $2800. Loss of $300.
Situation 2. You waited until your comfy price of $30 and bought there.
You spent $3000, it's now worth $2800. Loss of $200.
Situation 3. You sold a put with a strike of $30 and got assigned.
You spent $3000, it's now worth $2800. You got the premium of say $50. Loss of $150.
Situation 4. You just decided to wait and do nothing.
You spend $0. You didn't buy anything. Profit/loss of $0.
If you have no plans to sell the underlying stock, then in all of the examples it would be an unrealized loss. Which is still a loss.
While situation 3 leads to a better outcome than situation 1 or 2, it's still a negative outcome. You have used more money than you have gained, so at the moment it most certainly is a loss. It might be a smaller loss than your original plan was but it's still a loss.