Sometimes when I get assigned shares and I do not want them, I simply revert the entire trade back to the original trade. Let me explain. Sometimes investors wait too long before rolling their deep in the money naked puts and are surprised to find they have been assigned unwanted shares. Today I received quite a few emails from investors who were assigned on shares of CLF Stock (Cliffs Natural Resources Stock), ABX Stock (Barrick Stock), NEM Stock (Newmont Mining Stock), APPL Stock (Apple Stock), GOOG Stock (Google Stock) and a host of resource stocks over the past couple of days. I even had two investors who had sold puts on Caterpillar Stock (CAT) at $92.50 and with the stock treading water at $80 support, they were assigned shares last night. All of these investors were holding April 20 options expiry which conclude tomorrow, Friday April 19. They had failed to roll their deep in the money naked put positions forward to stay ahead of assignment.
A couple of points to mention:
Before reading further I just wanted to mention that:
1) If you are deep in the money you should roll out two to three weeks before the options expiry takes place.
2) If you are deep in the money and the underlying stock pays a dividend you should check the date of dividend and amount being paid. If the amount being paid exceeds the value of your naked puts, roll out at least 3 months to avoid being assigned shares.
3) The deeper in the money you are with your puts, the further out in time you should be. For example for investors holding naked puts at the $35 strike in CLF Stock you should be at the least, sitting in July for July 20 2013 options expiry. At the time of writing this article, CLF has closed the day at $17.53 (Apr 18 2013). Below are some of the deep in the money put option premiums. Simply take the bid side and subtract the put strike that was sold.
For example, the CLF Stock $35 naked puts for July20 xxpiry are bid $17.55. Deduct the put strike…… To read the rest of this Rescue Strategy article FullyInformed Members can login directly through this link or Members can sign in here. Non-members can join here.