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Re: Chemist2 post# 173058

Friday, 01/18/2019 4:49:03 PM

Friday, January 18, 2019 4:49:03 PM

Post# of 426450
The real issue with naked selling is you can say you’d be happy to buy amarin at $13 so sell the put, but that fact is if amarin was trading $6 when the puts were expiring, chances are something may have fundamentally changed that makes you not want to own it at $13 or any other price. What’s the minimum opportunity cost? Well even if you want to own amarin, you have to pay $13 for shares worth $6.

If amarin had tons of cash, you could say I love owning it at $20 because the drug and it has $10 per share worth of cash. If they were to announce a $9 cash dividend after you sold the puts, the new expected price of the stock would be $11, and they would no longer have the cash you liked or be worth more than $13 for the time being. This is one example, but a reason I stay away from naked selling. You will make small profits often, but can have catastrophic losses. Knowing if the premium for options is to the upside or downside will help you make money in the long run trading for yourself though...
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