Can I buy puts of a stock without having the actual shares?

Question

I'm looking at SQNM and I don't know what the move will be. I want to buy calls and puts at the same time and will realize any profit instead of buying the shares before expiration date.

The stock is currently trading at $21. I want to buy 100 calls and 100 puts but I don't have enough money to buy the actual shares before expiration date. Can I use "sell to close" to realize any profit instead of buying the shares?

Thanks.

Answer 1

<<<Can I buy puts of a stock without having the actual shares?>>>

Yes.

<<<The stock is currently trading at $21. I want to buy 100 calls and 100 puts but I don't have enough money to buy the actual shares before expiration date.>>>

I want to make sure you know what you are saying. From your question I believe you are still learning about options. A 100 lot straddle or strangle is, in my opinion, way too large a position for a new trader. For example, if you were buying the August $20 strike price at Friday's closing price the calls would cost you about $2.70 per share and the puts would cost you about $1.95 per share, for a total cost of

($2.70 + $1.95) x 100 x 100 = $46,500

Do you really have that much money to risk on something you are still learning about?

<<<Can I use "sell to close" to realize any profit instead of buying the shares?>>>

Yes. You can also use a "sell to close" order to cut your loss if you do not have a profit.

Answer 2

Yes

Answer 3

You sure can. Trading naked options is a great way to double your money in a couple of hours. You can also lose your shirt.

I do sell puts. I sell a put on a $21 stock at the 20 strike price for say 1.50 ($150). If on expiration day the stock is above $20 I keep the 150. If it drops below 20 I have effectively bought it for $18.50. My broker requires me to keep the $2000 in margin. Not a bad way to make money. 80% of all my puts expire and I walk away with money. Once in awhile I get hosed like AMD a year or so ago. Don't put all of your eggs in one basket. Or like I would do today buy a 15 put for say .25. It is cheap insurance.

Answer 4

Yes, you can close out the trade by "selling to close"

Most options traders NEVER exercise the options, because of the capital required to take delivery of the shares.