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Author: Zumba Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1202  
Subject: Re: Options in trouble Date: 12/3/2012 3:52 PM
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bertjay - I presume you sold puts on MSFT and NOV? Do you have the money in your account to purchase the shares of both stocks?

In order to decide whether to take your losses and get out or take delivery of the stock, you should decide how much you need the money. Are you ok with having money tied up in both stocks for months or even a few years? Both are very good companies and I have little doubt that their stocks will move back up over the next few months.

But I could be wrong. I sold puts with a SP of $25 on AEO in 2007. The stock tanked, I was put the stock, then sat on it for years as the stock went as low as $6. I finally started selling calls on the stock and eventually had it called away from me for a loss. The stock recently hit $24, but it took the stock 5 years to get back to that level. I was also short puts on GES a few months ago when the stock tanked. I took the loss and walked away because I didn't want a repeat of my AEO fiasco.

Selling puts can be a great way to make relatively quick money, but it can also be an easy way to lose money fast. It's important to decide in advance what your goal is - to collect premium or buy the stock at a discount to the current price. Either way, be sure you have a plan before you sell the puts. If your goal is to simply collect premium, sometimes it's better to sell a put spread so that your max loss is pre-defined at a more manageable level than with the naked short put.

Paul
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