I'm seeing a lot of things that are like, the stock is $2.55, and a $3.00 put option is $0.40, so you're losing money buy writing it. You could buy the stock for cheaper on the regular market. If you sell the put, you make $40. And then if the stock is put to you, you will pay $2.60. But if you just buy the shares regularly you would pay $2.55. How is that a good deal?
If you price the option at 0.45 then you will get free money: sell stock and sell option. If stock price go up you earn free $40 and gains on stock. If stock goes down you can close stock position with 0 cost. It is because optionality has value so it is priced at $0.40. People sell option at a cheaper price is because there is a chance they can get free premium if it does not get exercised.
it’s not. You shouldn’t trade that. there isn’t a rule that says every option has to be liquid and quoted tightly.
%% A stock priced @$2.55[penny stock/LOL] tends to be a bad deal from the getgo. MOST ANY low volume market has a wide bid /ask. I started to say, , and dont try to buy a house for $2.55 or $40; but sometimes/rarely, a gift house is sold for a $1.oo
If the price closes above 1.5 at expiration you'll keep the .15 . Price needs to rise & stay above so why would this be "free money"?
Correction: You will NOT pay $2.60. You will pay $3.00, the strike price, net $2.60 taking into account the premiums. But this option is priced wrong. An option is never priced below its intrinsic value. Its intrinsic value is at least (strike - underlying ) cuz it's ITM. Overall it is NOT a good deal even if the option is priced correctly. This is everybody on ET here is saying. The opportunity cost is not worth it to buy underlying via option assignment.