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Bought a put option during the initial USO crash prior to the 8-1 RS, uncertain how to proceed as this was my first option purchase and went based on the old pricing.

I wanted to know if this is worthless or if there are any advantages to buying back or selling to open?

USO Put Option 6/5

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    The contract is worth whatever the bid is. May 13 '20 at 1:25
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You actually sold that put, that's why it shows you received a $12 credit and indicates that you'd have to buy the option back to close out the position. Holding until expiration gets you that extra dollar in premium if the option expires worthless. Buying it back for a dollar closes out your position, releases collateral, and eliminates tail risk (if USO drops below $12 before 6/5 you could get assigned 12 shares at $12).

Many option sellers take profits before max gain is achieved because there's often something better to be done with the buying power that's tied up in an option that has already achieved the bulk of its potential.

All the 12's in this scenario are a fun coincidence, you happened to sell the option for $12, the strike was $1.5 but that's equivalent to a $12 strike post-split because 1.5 x 8 = 12. It's 12 shares that you'd be assigned because 100/8 = 12.5 and they convert the fractional shares to cash.

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  • "pay $6 to the option holder" -- don't you mean pay $6 minus the value of half a share?
    – nanoman
    May 13 '20 at 6:34
  • Absolutely insightful. Thank you, this has help me converged my understanding about options a bit more. Much appreciated for your assistance. May 13 '20 at 14:12
  • @nanoman The $6 is to make up for half a share at $12 strike. He is due to buy 12.5 (100/8) shares if assigned, so 12 at $12 and cash for half of one, totaling $150 which is the same value as the pre-split strike x 100 shares, the initial $12 premium is his to keep in any case.
    – Hart CO
    May 13 '20 at 14:31
  • Right, if assigned he "should" pay $150 and receive 12.5 shares. Because the fractional share cannot be transferred, won't he pay $150 and receive 12 shares plus the cash equivalent of 0.5 share? You said "get assigned 12 shares at $12 and pay $6 to the option holder" which sounded like he will pay $144 for 12 shares plus pay $6 without getting anything for the $6, i.e., pay $150 and receive 12 shares and nothing else. ...
    – nanoman
    May 13 '20 at 16:17
  • ... For example, if USO is $8 at expiration, your statement indicates paying $150 and receiving 12 shares, whereas I am saying he'll pay a net $146 and receive 12 shares (or equivalently, pay $150 and receive 12 shares plus $4).
    – nanoman
    May 13 '20 at 16:17

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