# Can you closeout a short ITM call with a short ITM put?



## alphaman (29 January 2009)

Today is the expiry day. Say you have a naked short call that unfortunately has moved into money. Instead of buying back the call, can you sell an ITM put before close (same expiry)?


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## sails (29 January 2009)

alphaman said:


> Today is the expiry day. Say you have a naked short call that unfortunately has moved into money. Instead of buying back the call, can you sell an ITM put before close (same expiry)?




Puzzled why you you would want to sell an ITM put instead of simply buying to close the sold call?  

Adding a short put increases negative gamma risk especially on expiry day.  Also there would be additional fees of buying and selling the stock which can be quite expensive depending on the broker you use.  

It would be cheaper on fees just to close the call - not unless you think you could get a little extra premium on the put that would more than cover those stock fees and were willing to take on the negative gamma risk.

Anyway, that's my  without fully understanding your reasoning behind such a move.


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## alphaman (29 January 2009)

Thanks sails. Yeah I know it does sound odd, a bit silly even. But I think sometimes, not often, but occasionally you can get a bit more premium without much perceived risk (when I feel confident of current market mood) and the idea came across my mind a few times. I've never actually done it though. Not sure how my broker would react to it.


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## emilov (26 April 2009)

The broker would react allergically ;-).

One experience from my past: on expiry day I sold naked calls on BHP (that is from my young and stupid days). Then the whole day I was watching and hoping and praying that BHP won't go over resistance. It didn't and I made a few hundred bucks. Still, this is something I'll never do again. Too stressful, too risky.

So what I'm saying is this: when you are short naked options, *be damn sure* you exit those positions in a timely fashion when the stock gets close to your strike. There are countless stories of people who lost their last shirts doing unprotected naked calls (i.e. it might work most of the time but one bad trade can kill you).

Cheers, Emil


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