Can a long put falter?

M

Mark17

Member
I recently read a trader say he exited positions in fall 2008 because he was worried his long puts might falter. He said puts aren't insured and are only as good as the market maker.

Any truth to this? In my mind, the whole enterprise of option trading is built on buying to get rights and selling to be assigned obligations. I can hardly imagine that someone--an exchange, the OCC, some clearing firm--wouldn't step up and honor the right. Any thoughts on this?

Thanks!
 
Mark17 said:
long puts might falter
Click to expand...
Not sure what you mean by falter
If you don't exercise it and it expires worthless I guess you could say that

Put's are not insured but that can be viewed as insurance against a portfolio or a stock

Any links to where you read that ?
 
i think mark is referring to cases where the seller can't deliver on the put, the broker platform
can't execute trades, the markets are halted, or some other catastrophic event. i don't remember the
details of the market halt in 2008. i didn't have any open positions at the time. i'm not sure of the
succession of responsibility when a trader can't meet their obligations, but i remember hearing tom
sosnoff saying that at thinkorswim, they lost a lot of money when a trader blew out his account and the
brokerage was responsible. if they fail, it probably falls on the clearing firm, and then on the occ.
the occ has rules for unscheduled and scheduled market closings. see the link below, specifically
rule 805:

For more information on underlying prices at expiration for unavailable exchanges, see OCC Rule 805 (j) of the OCC Rules (http://www.theocc.com/about/publications/publication-listing.jsp).

https://www.theocc.com/getmedia/8d6...a09be7/unscheduled-market-closings-guide.pdf;
 
jim leahy said:
i think mark is referring to cases where the seller can't deliver on the put, the broker platform
can't execute trades, the markets are halted, or some other catastrophic event. i don't remember the
details of the market halt in 2008. i didn't have any open positions at the time. i'm not sure of the
succession of responsibility when a trader can't meet their obligations, but i remember hearing tom
sosnoff saying that at thinkorswim, they lost a lot of money when a trader blew out his account and the
brokerage was responsible. if they fail, it probably falls on the clearing firm, and then on the occ.
the occ has rules for unscheduled and scheduled market closings. see the link below, specifically
rule 805:

For more information on underlying prices at expiration for unavailable exchanges, see OCC Rule 805 (j) of the OCC Rules (http://www.theocc.com/about/publications/publication-listing.jsp).

https://www.theocc.com/getmedia/8d6...a09be7/unscheduled-market-closings-guide.pdf;
Click to expand...
I remember such discussions as well. But to me, there _is_ some sort of succession. Someone will make good on it when the smoke clears.

When I buy a put, I don't know who the seller is. We see the exchange but we don't see the MM, the company, any clearing firm listed, etc. I can't imagine that if I were to exercise it that couldn't happen... unless we had a world situation so horrific that such exercise would be the least of my concerns and Armageddon were truly materializing before our eyes.
 
When you trade an option on one of the exchanges your counter-party becomes the OCC. You are not "matched" with the entity on the other side of your transaction. As said above, the day the OCC fails you have much bigger problems than your trades.
 
It could happened ...just don't buy the 2068 expiry date and you will be safe!.......
"

Apophis asteroid might be more likely to strike Earth in 2068 than thought!!​

 
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