Nothing. Once you enter into a put contract, the strike price remains the same. If the stock price goes over the strike price and stays there until expiration, you just let the put expire.
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The Payoff i.e. profit for a Call Option is St-X where St is the market price at time t and X is the exercise price. Assuming that it is an American Style option where it can be exercised at any time, If St is significantly greater than the exercise price,X, (the agreed price to buy an option at) then if the option holder exercises it immediately they will be 'in-the-money.' This means it has a high intrinsic value which causes a rise in value for the option. The Payoff for a Put Option is X-St where X=exercise price and St equals market price at time t. If the market price increases the gap between X and St (Payoff or Profit) reduces or if X<St then they will be making a loss. This will mean it will have a low intrinsic value (value if exercised immediately) therefore the value of the option will fall.
No. The value of a call option can never be negative. For example, let's say that one has a call option on FOO with a strike price of $30 and the option expires at the end of the day. If the underlying price of FOO shares are below $30, the price of the option will be very near $0 (because no one would pay much for the right to pay for an underwater option), but there is still a chance that the stock will go above $30 (no matter how remote). If the underlying price of FOO shares are at $30, the price of the option will be low, but positive (because there is a chance that the stock will go above $30. If the underlying price of FOO shares are above $30, the price of the option will be slightly higher than the difference between the strike price and the share price (because there is so little time left for changes; however, there will be some time value as suggested in the examples above).
When a stock is at $10, a $9 strike price call option allows you to buy that stock at $9, which is $1 cheaper than the market price, hence it is in the money (ITM).Now, when a stock is $10, a $9 strike price PUT OPTION allows you to SELL that stock for $9 when you can actually sell it for $10, so there's no value in it, right? (why would anyone want to sell a stock at $9 when he can sell it for $10, right?) That is why it is out of the money (OTM).It is not an inconsistency but that you did not understand that options moneyness for call and put options are the reverse.
When you write a put option, you are player banker to someone betting that the price of a stock is going up. You receive the "bet" in the form of the options premium earned form the person buying the put options from you. If the stock fails to exceed the strike price of the put options by expiration, the buyer has lost the bet and you keep the "bet" money as profit. In this case, your profit is limited to the "bet" money or options premium you received for selling the put options. When you buy a call option, you are buying the right to buy a stock at a fixed price until expiration. If you buy a call option with strike price of $10 and the stock subsequently went up to $50, you can still buy the stock at $10 and then sell it for $50, making the $40 difference as profit. In this case, your profit is only limited to how high the stock rises.
Yes, and it's massive. If you buy a call, the option exercises if the stock price is higher than the strike price. If this happens, you resell the stock and keep the profit. If you sell a put, the option exercises if the stock price is below the strike price. If this happens, you bury the stock in the back yard until the price goes back up.
Exercising an option means exercising your rights to buy or sell the underlying asset in accordance to the parameters of the option. When you exercise a call option, you will get to buy the underlying stock at the strike price no matter what price the stock is trading at in the market. When you exercise a put option, you will get to sell the underlying stock at the strike price no matter what price the stock is selling at in the market. In both cases, the option you own disappears from your account.
Stock options allow you to buy stock in a company at a certain price, no matter what the price of the stock is currently. There is usually a time period associated with the offer. Sometimes this could be a sweet deal (if the stock is currently higher than the option) to worthless (if the option price is higher that the current stock price). You also don't have to have the funds to exercise the option, you can have a brokerage company exercise the option, then sell the stock at the higher price, with the difference being your profit.
A valuation stock option is an agreement made to offer the option to purchase the stock at a later date. The price of the option is based on the reference price and the value of the asset in which the stock is being purchased.
If the spot price of the stock exceeds the "strike price" in the call option, the option is in-the-money and you can exercise it. But if you have a choice, wait to exercise it until the stock's spot price exceeds the strike price enough to cover the premium. Example: the strike price is $40 and the premium was $2. In order to make money on this option, the stock price needs to be over $42--enough to pay for the stock and replace the money you spent buying the option.
A component of the option price is the implied volatility of the stock. When the implied volatility rises the price of the option rises slightly. Read more about VEGA & DELTA of an option.
If you are "called" on your short option you will have to sell the Underlying contract for that option at the option's strike price, which will likely be the stock itself. You will then have two positions; a long LEAPO and a short stock. http://www.optiontradingtips.com/strategies/covered-call.html
A call option gives the option buyer the right, but not the obligation, to buy a certain amount of stock on or before a certain date for a certain price. A put option gives its buyer the right, but not the obligation, to sell stock on or before a certain date for a certain price. How the options are exercised is another difference. If you bought a put, you're hoping the stock price falls below the strike price--the certain price in the contract. It would make no sense to sell stock for $10 a share if it's $15 now, right? Calls exercise when their stock price goes above the strike price.
The strike price of a stock option, is a fixed price at which the owner of the stock can either buy or sell at. The strike price is a key variable in a derivatives contract between two people.
It brings the stock price back down to a more "affordable" level. On the other hand, a reverse stock split increases the stock price by reducing the amount of shares outstanding.
You can use stock option quotes to get an estimated value of stock you own. You can also use the quotes to find the current offering price of a particular stock you're interested in.
You certainly should not exercise a call option when the stocks price is above the strike price. If you really want the stock, go and buy it at the market price. For example, if you own an option with a strike price of $15 and the stock is trading at $9, why would you pay $15 to buy a stock that you could only buy or sell for $9. That would be irrational.