Comments on: How can an investor sell stock after purchasing a put option when the value of the stock dropped? http://fundpicksandpansstocks.com/how-can-an-investor-sell-stock-after-purchasing-a-put-option-when-the-value-of-the-stock-dropped.html Data markets, stocks, dow, nasdaq, cnnmoney jones. Mon, 21 Mar 2011 16:53:26 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: zman492 http://fundpicksandpansstocks.com/how-can-an-investor-sell-stock-after-purchasing-a-put-option-when-the-value-of-the-stock-dropped.html/comment-page-1#comment-2059 zman492 Sun, 06 Jun 2010 00:01:41 +0000 #comment-2059 You are correct that no one would want to pay $50 per share for a stock that they could buy for $40 per share on the open market, but when someone sells a put option they understand and accept that (1) that may happen and (2) the decision is up to the holder of the option. You should also understand that it is quite likely that the person who wrote the put option did so as part of a spread. For a fairly simple example of a spread trade I did earlier see http://messages.yahoo.com/Business_%26_Finance/Investments/threadview?bn=4686677%23optiontradestraderecommendations&tid=3274&mid=3274 In that example I bought AMGN stock for $62.50 per share when it was trading for less on the open market, but I still ended up with a small profit. You are correct that no one would want to pay $50 per share for a stock that they could buy for $40 per share on the open market, but when someone sells a put option they understand and accept that (1) that may happen and (2) the decision is up to the holder of the option.

You should also understand that it is quite likely that the person who wrote the put option did so as part of a spread. For a fairly simple example of a spread trade I did earlier see

http://messages.yahoo.com/Business_%26_Finance/Investments/threadview?bn=4686677%23optiontradestraderecommendations&tid=3274&mid=3274

In that example I bought AMGN stock for $62.50 per share when it was trading for less on the open market, but I still ended up with a small profit.

]]> By: !!! http://fundpicksandpansstocks.com/how-can-an-investor-sell-stock-after-purchasing-a-put-option-when-the-value-of-the-stock-dropped.html/comment-page-1#comment-2060 !!! Sun, 06 Jun 2010 00:01:41 +0000 #comment-2060 Entering into an option contract allows the buyer to call for specific performance of the seller just as outlined in your queston. This is the risk that sellers of options are willing to take. The option contract is legally binding contract between buyer and seller. Entering into an option contract allows the buyer to call for specific performance of the seller just as outlined in your queston. This is the risk that sellers of options are willing to take.

The option contract is legally binding contract between buyer and seller.

]]> By: STEPHEN J http://fundpicksandpansstocks.com/how-can-an-investor-sell-stock-after-purchasing-a-put-option-when-the-value-of-the-stock-dropped.html/comment-page-1#comment-2061 STEPHEN J Sun, 06 Jun 2010 00:01:41 +0000 #comment-2061 The put option is a legal contract between the seller of the option (e.g. a bank) and the buyer (the person with the right to sell). The buyer pays a premium to the seller for this right. Thus, if the buyer / holder of the option has the right to sell shares to the seller at $50, the seller must buy at that price if the buyer exercises the option within the terms of the contract. {The seller will hedge this market risk, usually in bulk, with another bank in the same way that a bookmaker lays-off some of its risk}. If you are interested in investing, there is a free course at www.finysis.net. You can also buy excellent e-books and Excel-based software to aid your analysis and investment. The put option is a legal contract between the seller of the option (e.g. a bank) and the buyer (the person with the right to sell). The buyer pays a premium to the seller for this right.

Thus, if the buyer / holder of the option has the right to sell shares to the seller at $50, the seller must buy at that price if the buyer exercises the option within the terms of the contract. {The seller will hedge this market risk, usually in bulk, with another bank in the same way that a bookmaker lays-off some of its risk}.

If you are interested in investing, there is a free course at http://www.finysis.net. You can also buy excellent e-books and Excel-based software to aid your analysis and investment.

]]>