Comments on: Stock Options Stop Loss http://www.chrisperruna.com/2005/12/08/stock-options-stop-loss/ Tue, 17 Aug 2010 02:24:01 +0000 hourly 1 http://wordpress.org/?v=3.0 By: elanus http://www.chrisperruna.com/2005/12/08/stock-options-stop-loss/comment-page-1/#comment-21101 elanus Wed, 03 Jun 2009 07:13:44 +0000 http://www.chrisperruna.com/?p=170#comment-21101 Since this comment hasn't been answered and someone else may be interested, BPART has no maximum loss as a result of this trade. In fact, he has a profit of $250, and may or may not end up having the stock put to him at $20, an outlay on his part of $2000 if his sold put is exercised. So he will either have $250 and no stock or $250 in cash plus he will own stock for which he will have to pay $2000. So no loss. He does, however, have a risk (not a loss). The risk is that the stock for which he paid $20 may fall in price, technically to zero. It will certainly be worth less than the $20 that he will have to pay for it if his sold put is exercised against him. However much it is below $20 will be compensated a little by the $250 cash that he received. It's up to him whether he takes a loss by selling it at a lower price, or holds it for a return to a price above $20, or perhaps sells calls against the stock to gain some more income. Since this comment hasn’t been answered and someone else may be interested, BPART has no maximum loss as a result of this trade. In fact, he has a profit of $250, and may or may not end up having the stock put to him at $20, an outlay on his part of $2000 if his sold put is exercised. So he will either have $250 and no stock or $250 in cash plus he will own stock for which he will have to pay $2000. So no loss.

He does, however, have a risk (not a loss). The risk is that the stock for which he paid $20 may fall in price, technically to zero. It will certainly be worth less than the $20 that he will have to pay for it if his sold put is exercised against him. However much it is below $20 will be compensated a little by the $250 cash that he received.

It’s up to him whether he takes a loss by selling it at a lower price, or holds it for a return to a price above $20, or perhaps sells calls against the stock to gain some more income.

]]> By: BPART http://www.chrisperruna.com/2005/12/08/stock-options-stop-loss/comment-page-1/#comment-19938 BPART Mon, 27 Oct 2008 21:16:15 +0000 http://www.chrisperruna.com/?p=170#comment-19938 Hi Chris, I have just entered a position Sell to open ----> 1 contract ---> FJJWT (FXI Nov 20 Put) ----> at premium of $2.50 Therefore I am short a put ITM option. Am I right to state that my maximum loss for this trade is (20 price per share * 100 shares ) = $2000 - $250 ( premium I have just received). The maximum loss for each contract is $1750. The reason I entered into this position because I am willing to buy this stock for $20 and will hold to it if this option is exercised by the put buyer. In all my past option experience, I am always long the call and put. I have never short a call or put. This is my first experience. Can you please advise if I understated my risk for this trade? Thanks. Hi Chris,

I have just entered a position

Sell to open —-> 1 contract —> FJJWT (FXI Nov 20 Put) —-> at premium of $2.50

Therefore I am short a put ITM option.

Am I right to state that my maximum loss for this trade is (20 price per share * 100 shares ) = $2000 – $250 ( premium I have just received).
The maximum loss for each contract is $1750.

The reason I entered into this position because I am willing to buy this stock for $20 and will hold to it if this option is exercised by the put buyer.

In all my past option experience, I am always long the call and put. I have never short a call or put. This is my first experience.

Can you please advise if I understated my risk for this trade? Thanks.

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