jwblue wrote:Lets say I buy a put option to sell 100 shares for $170 each.
The stock goes down to $50.
What if I want to exercise the put option and the person does not have the funds to buy the shares from me for $170 x 100?
Is he forced to buy regardless if he has the funds?
Am I SOL or does the brokerage of the put seller eat that loss?
Can I buy a put option without owning the stock?
Say I buy a put option for $170. If the stock goes down to $50.00. I buy the stock for $50.00, then exercise the put option.
Is my loss limited to the cost of the put option? It seems a great way to short a stock.
What if I do not own the stock and the stock goes down to 0 overnight? Can I still exercise the put and make the profit?
No you just exercise the put option. You receive the stock in return for the $50. Buying it would reverse your position. If your Strike was $170, the underlying drops to $50, and your option premium was $10, then you'd make $170-50 - 10 = $110. You've also lost the interest on the $10 since you bought.
jwblue wrote:From my example above, In order to exercise the put option, do I need to have the funds in my account to buy the shares for $50 and then sell them at the higher price?
jwblue wrote:No you just exercise the put option. You receive the stock in return for the $50. Buying it would reverse your position. If your Strike was $170, the underlying drops to $50, and your option premium was $10, then you'd make $170-50 - 10 = $110. You've also lost the interest on the $10 since you bought.
I am under the assumption that I never own the stock. What does "buying it would reverse your position" mean? Do I actually buy the put at that time? I thought I buy it earlier speculation the stock will go down.
Or do you mean that buying it AUTOMATICALLY reverses my position?
One more question.
On my Options Chain, for PNRA there is a Put with an ask for 14.50 with a strike price of $170 in 24 days.
I thought when I buy a put option it is the right to sell 100 shares. Is that for 1 share?
If it is for 100 shares that would not make sense.
The current share price is $156,74.
Does that mean in 24 days if the price is $158 which would not be unreasonable, I could exercise the Put Option and make ($170 - 158) x 100 = $120 which is all for a $14.50 risk?
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