Ok, hoping I can learn a lesson here on options, specifically puts. I had an option in June expire-
SOLD 1000.0 CLWR @4.0 upon Exercise 10.0 CLWR 100 JUN 11 4 PUT
Great, worked perfectly. But now I'm left with -400 shares of the stock? I didn't realize that part of it.
So I had to buy back 400 shares
The questions I have are -
1. Why do I get -400 shares?
2. If I had exercised before the expiration date, say at $3.50 - would I have -350 shares?
3. Once I have the negative shares, what is the optimal time to sell them?
Thanks to anyone that cares to explain all that!
Options are contracts. There is someone on the other side of the trade. Each contract represents 100 shares. If you sell a put, 100 shares per option can be "put to you". If you buy a put, you have the
option to put 100 shares to someone else.
It sounds like you bought 10 options.
If you were at a profit prior to expiration, you need to close the position. If you don't do this prior to expiration you could (asusme will) loose all your money. So, for the stock to be sold on you is usually a good thing. Hopefully you can buy the stock back at the same price it sold and have the same profit.
Taxes. All this crap that is happening is considered one transaction for tax purposes. There is fun wording in tax law called "significantly similar". You really need to read up on taxes with options. It is a nightmare. All you can do is read, read and read. It's not something I can or want to explain everything about.
To address your specific questions:
1) explained above. cliff notes: If you did not have that forced upon you, you would have actually lost all your invested money.
2) when an option is exercised, each exercised option is equivalent to 100 shares.
3) You are now short that stock. When you exit the short is up to you. Remember to adjust your cost basis on those shares in accordance with the options. Also (example, not your case), if you have 5 options and are now short 200 shares now due to exercising, and you exit the other 3 options the following happens. You split the cost of the 5 options into a 40%/60% split. That 60% split is your cost basis on those 3 options you exited. The other 40% is used to adjust the cost basis of the shares you are now short.
You have alot to take in. Read, re-read and google google google. You need to learn about how to properly book keep when dealing with options. Options can be an absolute nightmare with taxes especially when you have to consider wash sale rules.
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