Explore Your Options  |  JUN 2005

Explore Your Options by Tom Gentile

Stocks & Commodities V. 23:6 (51): Explore Your Options by Tom Gentile Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C. CLOSING OUT A LOSING BEAR PUT SPREAD I set up a losing bear put spread, and the price is staying above the price of the long put side of the spread. I want to exit the trade — but if I sell the long put, will I be in danger of assignment if the price drops? As you know, the bear put spread is created with the simultaneous purchase of a (long) put with a higher strike price and the sale of a (short) put with a lower strike price. The position will generate profits if the stock price falls below the strike price of the short put. If the stock is not moving lower and the trader wants to exit the position, the best solution is to exit the entire trade. Simply selling the long put will expose the trader to greater risk. It means that the bear put spread has been converted into a naked or uncovered short put.

by Tom Gentile