When a put is sold to open, nothing locks the seller into holding the put until it expires. This doesn’t matter if the put is a weekly or a monthly. In fact, puts can be day traded. Sell to open a put a 0.86 and buy it back a few minutes later at 0.56, assuming a volatile market and a put that is dropping in value. On one contract, that’s a gross income of 0.86 – 0.56 = 0.30 x 1 contract x 100 = $30. To answer the question, yes — a put that is sold to open can be bought back at any time before expiration.

There are many reasons to close out a put early. We do this periodically in the SOI newsletter when the opportunity presents itself.

Let’s explore a few of these reasons for closing a position early.

Closing Ahead of A Risk Event

A risk event might be any of the following:

  • Earnings
  • FOMC
  • Inflation report
  • Jobs report
  • Closing ahead of the weekend

In 2022, inflation reports have taken on significant importance, making them a risk event. The market swings widely based on the results of these reports. This wasn’t always the case, which is why its important to understand what the current market views as high impact information.

With FED speakers coming out and the war in Ukraine, holding over the weekend can be risky. Some traders may choose to close out a position on Friday or, at the least, reduce its size.

Unexpected Spike In Stock

Risk events aren’t the only reason to close out a position early. Sometimes a stock will spike up on news. This causes its puts to drop in value fairly quickly. The drop can be significant enough and close enough to a target price that it makes sense to close out the position. For example:

  • A put is opened at 0.85
  • Profit target of 0.10
  • Expires in three weeks

But then drops down to 0.20 after only one week. Is it really worth the risk to hold for two weeks just for 0.10 (i.e., profit target)? Holding onto 0.10 of exposure for another week or two doesn’t seem like a good risk/reward tradeoff.

There’s also the flip side — closing out a put early for a loss. One example of this might be a stock that keeps sliding lower to your strike. Earnings are just a few days away, and the stock isn’t rallying with the market. In this case, it might be best to cut your losses now vs. potentially bigger losses after earnings.

To hold a put until expiration is purely up to the put seller. Most of the time, the put will be closed at some point ahead of expiration. There’s plenty of flexibility on when the put is finally closed.