Fidelity Naked Put Execution and Stock Purchase
- Main Problem: The user wants to know if they can buy a Naked PUT with a strike price of 100 and execute it if the stock drops to 80, allowing them to purchase shares at 80 and sell them for 100.
- Solution: The user can proceed if they are approved for the required options tier and have sufficient buying power.
- Control Over Contracts: As the owner of the option contract, the user can decide whether to exercise it, and contracts that are in-the-money at expiration will be automatically exercised unless specified otherwise.
- Early Exercise Option: The user can exercise the contract at any time, even if it is out of the money, by contacting Fidelity’s customer service.
- Risk Management: If the account lacks sufficient buying power to cover the shares resulting from exercising an in-the-money option, Fidelity may close the position to mitigate risk.
Here’s the full thread
Hi
Can I buy a Naked PUT with a Strike price of 100 and if the Stock went to 80.
Can I purchase 100 shares for 80 and execute my PUT in order to sell them for 100?
(1/2) Hi, @Cheese!
As long as you are approved for the required options tier and have sufficient buying power, then this should be possible.
Check out the Options FAQs to learn more about the tiers: https://www.fidelity.com/options-trading/faqs
When you buy-to-open an option contract (also referred to as being “long” or the “owner” of a contract), you are in control of whether or not those contracts are exercised. If Fidelity doesn’t receive instructions to exercise a contract from you, contracts that are in-the-money (ITM) by $0.01 or more at expiration will be automatically exercised for you, unless you enter Do Not Exercise (DNE) instructions. Alternatively, if Fidelity doesn’t receive instructions to exercise and the contracts are out-of-the-money (OTM) at expiration, they will expire worthless. Keep in mind, as the contract owner, you can close out the position at any time before expiration.
As a reminder, when buying a put, one would have the right to sell the underlying stock at the strike price.
Moving on, you may choose to exercise a contract at any time, even if a contract is out of the money. Options contracts can only be exercised early by calling a representative and you won’t be charged commissions for exercising options contracts. You may also call us if you wish to enter a DNE on the contract. Our representatives can enter early option exercise requests until 5 p.m. ET on market days. To contact our 24/7 customer service team, click the link below:
Contact us: https://www.fidelity.com/learning-center/investment-products/options/options
(2/2) Please note that if an account does not have enough buying power to support the purchase of shares resulting from the exercise or assignment of ITM option contracts, Fidelity may close the option position before market close to reduce risk. Fidelity may take this action at any point during market hours on the expiration day when a contract is ITM or near ITM.
Let us know if you have any other question!
Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read the Characteristics and Risks of Standardized Options (http://www.optionsclearing.com/about/publications/character-risks.jsp). Supporting documentation for any claims, if applicable, will be furnished upon request.