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Selling a cash secured in-the-money put

Personal Finance & Money Asked on March 14, 2021

I sold a cash secured put for XYZ stock. It is Aug 20, 2021 expiry for $34 Strike Price. The stock was trading at $31.60 when I sold the PUT. I have received $1K premium for selling that option.

  1. If the stock price reaches $35 any day before Aug 20, 2021, will I automatically be assigned 100 shares at $34 stock price, or will I be holding the position until Aug 20, 2021 and the shares will be assigned then if the stock price stays under $34 on that day?
  2. If the stock price increased to $33, can I close the PUT position early, so I don’t get the shares assigned?
  3. What is roll an option and what does it do?

One Answer

You can be assigned at any time when you are short an in-the-money option but that is unlikely if the option has any remaining time premium. The exception to this general rule would be if there is a pending dividend and the dividend exceeds an ITM put's time premium (not true for a call).

You can buy to close your short put at any time, ending your obligation to buy the stock.

A roll means that you close your existing put and then either:

  1. Sell a different strike put for the same expiration

  2. Sell a put for a later expiration (same or different strike).

In general, the objective of a short put roll is to bring in an additional credit (a later expiration) and/or sell a lower strike price (same or later expiration) both of which lower your risk.

Correct answer by Bob Baerker on March 14, 2021

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