Education about Selling Puts

[NW-Bound]

I just looked at my record. From Friday 2008/10/03 to Friday 2008/10/10, the Dow dropped big every day, and went from 10325 to 8451. That's 1874 points. It bounced up 937 points on Monday 2008/10/13, then went down again.

I was shell shocked looking at my stocks. I don't know how option trading guys would feel. I would think people on the other side of the trade would want to exercise their option. Many big name stocks lost 1/2 or more of their values in a very short time.

 

[utrecht]

I could be wrong but, I don't think most people who buy puts have any intention of exercising them. They are mostly used as trading vehicles that allow you to control massive amounts of stock for very little money and with a lot of leverage.

 

[NW-Bound]

It is true that most people trade options looking for gains without having to exercise them. It takes much cash to exercise them, compared to selling them and passing them on. Eventually, someone has to exercise them at expiration.

But I wonder if it ever happens that you hold an option deep in the money, and there's no buyer at the price you want, so the only way you get the option value is to exercise it. Some options I have traded were not very liquid.

More than once, I have had some LEAP call options assigned to me long before the expiration date, and it was not during any turmoil. The option holder wanted to own the stock for some reason.