2 August, 2021 seen 6,044
Stock splits are not rare, they happen quite often.
In this article, I'm going to try to shed some light on what happens to options when stock is doing a reverse split.
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On March 24, 2020, I bought both call and put ratio back spread options on XOP ETF.
A couple of days later I was…
Now, this is exciting - in the late evening of March 28th, 2019 (GMT) I made my first options trade (s).
To get to this point it took me a couple of months and a lot of reading, talking and watching YouTube videos. A huge learning curve and a lot of incomprehensible. Anyway - I just made it, my first options trade - probably really dumb, probably I will lose after all, but I feel very excited that at least I get it through.
Now, as you already can see from the title, here is what I did:
FTR Aug16'19 2 Put @0.45
What does it mean?
Investment Goal #7 - Selling Puts to Own / Generate Income
It means that I wrote (sell) a put option to buy FTR stock (X100) at $2 with expiry on August 16th, 2019. For that, I got paid $0.45 per share. Or $45. Also, I paid in a commission for this trade $2.40.
For me, It looks like a 22.5% yield in 142 days or 57.82%/year, now here is the bad news, the FTR stock is doing really bad lately, and there is really huge possibly that stock price will fall below $2 and I will be obligated to buy it. Now as I don't believe in this stock and I'm not looking to hold it long term, I should then quickly sell it off to keep this trade afloat.
5-year historical price of FTR stock
The good news, the break-even price for this trade is $1.55. If things will go South I hope there will be buyers for this stock.
The Bottom Line
I would like to say special thanks to Massimo, Oddmund and Zaki - for shedding some light on options trading.