Is there such a thing as SDS (same day substitution) on an option? It seems that in one of my classes we were told that we can get out of having a stock that we have sold a put on, being put to us using the SDS. I told my broker that I wanted to buy back the put so it was not put to me but he said it could not be done. (December 26, 2000)
Basically what happens when a stock is put to you is that you are assigned that stock. If you do nothing, you have three days to put up the money to take delivery. That means either the right margin cash (not wise in this market) or enough cash to pay for the stock. If you do not want the stock you can tell your broker you want an SDS which is basically turning and selling the stock that same day so you do not have to buy the stock. If you satisfy the margin requirements for the put sale to begin with, by selling the stock the same day you won't incur any further margin requirements (this varies from broker to broker) as the assignment to you and the sale of the stock will both clear on the same day. If you wait a day to get rid of the shares, then the assignment will occur a day before the sale, and if your broker requires more margin cash for the positions or if the stock moves against you further in that interval, you could be required to put up more margin cash.
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