Options Theory: When Naked Puts get Assigned
February 11, 2022
When you get assigned on a short put, it turns into a higher-cost stock position. If you tie up too much capital, then it limits your ability to enter other trades. Here’s how I think through the decision.
Notes
I’m curious if anyone else is in the same position I’m finding myself with regard to scaling. Over the last few months, I’ve been assigned and carrying more stock than normal. This has tied up more capital than normal so I’m not finding I have enough capacity to scale much (unless I want to over-leverage, which I don’t). I’m glad that the market seems to be turning around, but it’s going to take some time to offload these shares and free up some capital to be able to fully use the scaling strategies. Maybe I’m the only one in this position, but if not, what are others doing?
1) Exit some of the losing short puts prior to expiration to avoid being assigned too many shares and tying up too much capital. Your confidence level on the stock and its ability to recover should influence this.
2) Remember, there are two ways to make your money back. One is to let the losing short put turn into stock and recoup losses with cov calls or the stock rebounding. Two is to close the losing naked put and make it back on other trades. How much you like the stock and how confident you are it will recover over time will influence your decision.
2) When selling calls, sell ATM or even ITM calls to increase the chance you get assigned in the next month. Assuming there’s enough premium to recoup most (or all) of losses.
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