Quote:
Originally Posted by Patriam1066
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I tried doing options years ago but I am not on the spectrum, didn’t work for me. You saying WKHS or NKLA?
I just buy stocks because I have enough money not to care about risk and because I’m actually decent at it, but yeah, I never figured out the options game
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So, roughly speaking, lets say NKLA is trading at 30$ (even though its really at 31.25 approximately)
The sale of a put states that you will pay x price in future even if the price falls below that mark. For example 30$ at the end of january 2022, 16 months from now.
For guaranteeing you will pay 3000 for 100 shares at 30$ even if it drops lower than that, people are paying 1550$ for that guarantee, either as a hedge against complete loss of their $3125 investment (100 shares at 31.25 currently) or as part of their put-credit or put-debit of iron condor or strangle/straddle option spreads.
This surplus that theyre paying you for the obligation is what is referred to as a premium otherwise relatable to immediate cash back on your 3000$ investment.
After selling the 30$put, your broker withdrawls 3000$ from your cash account as collateral, and the buyer issues your broker 1550 to be returned to your account as "cash".
You can withdrawl that cash or you can use it to buy other stocks etc, but you dont get the 3000$back until the expiration date of the contract, and if the price is below 30, you end up woth 100 shares of the stock instead of your 3grand.
Contrarily if the stock price is above 30$ at the expiration, your 3000 is returned to your account because the option expires worthless and doesnt get exercised and you get the premium you collected 16 months earlier (today) on top of your original 3000 that was held for 16 months as collateral.
Seeing as how 1550 premium is 53% of 3000 that means you will profit at an expiration price anywhere above from 14.50/share with a maximum gain of 1550 on any price above 30.
A 20$closing price on expiration day would return you 100 shares worth 2 grand for example.
2grabd in liquidatable stock + 1550 in premium = 3550 back on 3 grand invested for 16 months.
25$ closing would mean 2500 in stock value +1550 in premiums = 4050 back on 3000 invested
10$closing cost would mean 1000$ back in stock value, 1550 in premium = 2550 back (450$ lost) on a 16 mo yh investment
35$closing means option expires worthless, you get your 3000 back and the 1550 premium