Sorry if the question is dumb but I just don't understand how selling ITM puts work.
For ex, if we sell a Aug 30th Nvidia $220 Put option, My collateral (max loss) would be $12815 and the premium I would be getting is ~$9k. Will I be buying 100 shares of Nvidia at around 3k then?
Understanding "Selling ITM Put options"
byu/chna6125 inoptions
Posted by chna6125
1 Comment
If you sell a 220 strike put at 91.85, you receive $9,185 cash. Buying power required to hold the position open is $22,000, but the cash contributes to that buying power, so that opening the position results in a *net* buying power reduction of $12815. If you get assigned, then your account is debited $22,000 at that time and you are given 100 shares. For tax purposes, rather than being taxed on the $9,185, it is subtracted from the strike price and your cost basis on the shares is 128.15 per share.
Note that none of this is dependent on whether the put was ITM when you sold it.