Writing PUTs: AIG, DAL, MER

Perform an analysis of the following Sept PUTs so as to get an idea about this strategy to either earn premium if Strike Price (SP) is not reached, or if a trader won't mind to buy a stock at a lower price. Of course, margin requirements have to be met with the brokerage firm so as to fullfil the obligation should a stock go down & hit the SP.

Stock: DAL ; Sell to Open PUT for Sept; SP= 7.5 ; credit = 0.75

Stock: MER ; Sell to Open PUT for Sept; SP= 17.5 ; credit = 0.56

Stock: AIG ; Sell to Open PUT for Sept; SP= 15 ; credit = 1.18

The obligation that a trader has is that if the stock closes at that strike price (SP) at expiration, the trader will buy the stock.

This is considered as a way to earn premium if it does not reach the SP, or a way to get a stock at a cheaper price becuase trader has pocketed the premium in advance.

If SP is not reached, trader keeps the premium. The premium received divided by the obligation to purchase is the ROI.

If SP is reached, then:

- The trader owns the stock at a lower price than SP, & can hold on to the stock or can turn around & sell a covered call against the holding.

- Or, if the trader does not want to own the stock & wants to bail out & not purchase the stock, then a reverse order needs to be executed to "buy back" (Buy to Close) the PUT & incur some loss/profit.

Position can be closed at a profit (if stock goes up, PUT loses value) or loss ( if stock goes down, PUT gains value) even prior to reaching the SP by simply buying back the PUTs

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