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Comment by echelon | Hacker News Reader

When you buy calls but don't have the capital to exercise those calls, do brokerage services lend you the money to collect on the gains assuming your call is in the black?

I have a pretty good stock portfolio, but I haven't dipped my toes into the call/put, futures, derivatives, "iron condors", etc. world yet.

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In that case you simply sell the call, instead of exercising (assigning) it. I switched to selling puts instead since then.

Are your puts covered? How do you mitigate the risk of the stock going up?

I need to learn a lot more before doing this.

Yes, puts are covered for now. There are several standardized levels of account access to buying/selling options. I think selling naked puts requires Level 5 while selling covered puts requires Level 3. I recommend practicing buying options first, and selling the options that you have bought, before selling covered or naked options.

Selling puts is bullish. You are selling someone the option to sell you shares at a given price so if the stock goes up, you collect the premium (since no one will voluntarily sell you something at a lower price than the spot price). If the stock goes down, then you are buying shares at a price you presumably deemed sufficient to hold in the long term.

When you sell a put, the risk is in the stock going down, not going up.

So you need to have enough cash in the account to buy the stock at the strike price of the put (or be long longer dated or further out of the money puts).

The risk of the stock going up is that you make a lot of money :-)

It's usually in your best interest to sell the options before they expire as the extrinsic value decays every day. If they expire in the money, they are generally exercised and liquidated at the same time before market close of the expiry date.

I suppose the cost of the loan to exercise the option would be equal to the difference between that and selling the option?

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