Question

Suppose you hold a put on a stock that has dropped significantly below the strike price and there is 3 months left until expiration. You very much want to get out of the option position. What would you do and why?

Answer 1

You can get out of the option position and save the losses by

The option writer – the element from whom you purchase put option – additionally has the decision of disposing of the option before the expiry. In the event that the cost of the fundamental resource – stocks or files – tumbles to approach the strike cost or underneath it, the option writer has the decision of repurchasing the option. To do that, he needs to pay a premium to the purchaser, since the put is currently out-of-the-cash. For this situation, the misfortune the option writer has is the effect between the premium paid to escape the position short the premium gathered.

Assuming, be that as it may, the cost of the fundamental resource is over the strike value, option writers may hold it until expiry since the agreement would be useless and they would have the option to keep the entire premium.