Hi all, I was reading option chains and I saw the following: Stock price is at 20$. I can buy a deep in the money put option for something like 40.12 $. Strike price is 60 $. So in this situation, I buy 1 put option for 4012 $. and I can exercise my option immediately. So I buy the stock at 20 $ and I can sell it at 60$ that X3. 6000 $ X 3 = 18000$. 18000$ - 4012$ = 13988 $. 13988$ - 6000$ = 7988$ profit. Is this possible? Because you can triple the money, your option premium will never be too expensive. What am I missing here? TIA
Still don't get it. I understand the fact that I pay the premium 4012$ and also the stock at 20$, so that's 2000$ = 6012$. Can someone explain in detail?
Xaction #1: Purchase 1 PUT option @ $60 strike, for cost of $4012. (Your CASH is -4012, your position is +4012) Xaction #2: Purchase 100 Shares of stock at cost of $20/share, or $2000. (Precursor to exercising put). (Your CASH is -6012, your position is +6012) Xaction #3: Exercize your PUT option, which also uses your long position. (Your CASH is -6012 + 6000 from the exercise, and position is now zero) You lost $12, not counting commissions and fees. Note: you do not recover the $12 excess required to purchase the original PUT, since you exercise the PUT.