How to Deal With Assigned Put Options

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Put options: In tonight's video, we're going to go over the two positions, and that we adjusted today in coach. They were our only trades today. Market was actually pretty active. Stocks were down nearly the entire day, which leads to higher implied volatility. We definitely need to see stocks fall a little bit more before we start seeing implied volatility really, really start increasing across the board.

Right now with stocks falling, we're seeing a slight uptake in implied volatility, but it's already so small that it isn't exactly making a marginal difference in our ability to sell more premiums. Let's hope for some continued sell off at least to spike up volatility here.

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We did have an adjustment trader, two adjustment trades to coach and it surrounds the 43 puts that we were assigned. Now, we were assigned these way early in the cycle, so we still have a lot of time between now and June expiration, but since we are probably deep in the money at this point, somebody probably went ahead and assigned them.

I know that some people did get assigned. I know a lot of people didn't get assigned. We're definitely going to go off of our live trades that we had where I did get assigned the one coach 43 put that was in the money.

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I sent out a video earlier this morning, so I'm just going to recap what we did here, but the first thing that we have to do is just reduce our margin exposure to owning the long shares. Since we were assigned the put we were long a hundred shares at 43. So we're long stock, and we had to pay for all that stock at $43 a share, times the hundred shares that we were long.

That tied up a lot of capital. The first thing we always want to do is just quickly reduce that capital by selling back the shares. A lot of people always get freaked out about being assigned or going through the exercise process. It's very, very easy, we've got a ton of video tutorials for you here inside the membership area.

What you want to do is go ahead, and very simply, early in the morning, as soon as the market opens, just go ahead and reduce that position by selling out of those shares. We sold them back for 35.60. We knew we'd sell them back at a loss on the actual shares. At the same time we went back out and we sold the 43 puts in July, so that gave us a credit of $730, which basically helps neutralize the effect of getting the shares assigned at 43, and then having to sell back the stock at 35.60.

Even though the actual share transaction was a loss, the fact that we took in an additional credit, gave us back all of that money and then some. The net effect is that even though we got assigned, we really didn't get hammered too much on coach and we're still in a pretty good position with coach going forward.

We've made a bunch of adjustments in coach. This will be a really good case study going forward. We'll definitely recap everything once we get through the actual trade. At this point, we want to see coach trade still between 35 and 43 anytime between now and July expiration. Quite a wide window and range, and we'd ideally love to see the stock make a little bit of a rally and rebound here.

Given the fact that it's moved completely against us since it announced earnings and we've adjusted along the way, we're not doing too bad. We'll probably have somewhere around 190, $180 loss or so. Which isn't bad at all and again, all because we've made a lot of adjustments along the way. Could have been much much worse had we done nothing at all.

That's basically what happened with coach. Nothing else here to report. Take a look at the video that we sent out earlier this morning for the logistics on how we went about entering those orders. I did a quick little video for you guys in the morning because I knew people would have a lot of questions.

As always if you guys have any comments, please add them right here to the membership area and until next time, happy trading.

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.