Long Put -- Can't execute
Long Put -- Can't execute
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HJG · External communityPost link
External question — Personal Finance Stack Exchange
Author: HJG
Original post: https://money.stackexchange.com/questions/161155
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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I'd like to buy a so-called "naked" put option on VTI. In order to exercise the put if the price of VTI is at the strike price or below, I must find someone to buy it at the strike price. I realize that the person who sold the put to me, or someone else who sold an identical put, is legally required to buy at the strike price, and will be assigned. But what happens if they don't have the means to meet their obligation? True, their broker will ideally make sure that they have sufficient assets in their account, but things happen. Are people ever not able to exercise their short puts for this reason? Do they ever get stuck with their puts?
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange
Author: Bob Baerker
Original post: https://money.stackexchange.com/a/161167
License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/
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Decades ago, traders used the terminology of buying a naked put. Today, a 'naked put' means selling a put option by itself (uncovered) without any offsetting positions. The counterparty to that trade simply buys a long put.
When you want to sell your long put, you don't have to 'find someone to buy it at the strike price'. The market maker is required to provide liquidity. You may not like the price but there will be a price available. If it's an active option, other traders may be the market.
These days, brokers actively monitor margin and risk and blowing out an account is isn't a frequent event. In the unlikely event that happens, the Options Clearing Corporation (OCC) acts as a guarantor to ensure that the obligations of option contracts are fulfilled.
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Quoted from Forex.com.bd-Editorial External answer — Personal Finance Stack Exchange Author: Bob Baerker Source score (net votes, not local likes): 2 Original post: https://money.stackexchange.com/a/161167 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Decades ago, traders used the terminology of buying a naked put. Today, a 'naked put' means selling a put option by itself (uncovered) without any offsetting positions. The counterparty to that trade simply buys a long put. When you want to sell your long put, you don't have to 'find someone to buy it at the strike price'. The market maker is required to provide liquidity. You may not like the price but there will be a price available. If it's an active option, other traders may be the market. These days, brokers actively monitor margin and risk and blowing out an account is isn't a frequent event. In the unlikely event that happens, the Options Clearing Corporation (OCC) acts as a guarantor to ensure that the obligations of option contracts are fulfilled.
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