Question

Suppose you hold a put on a stock that has dropped significantly below the strike price...

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?


Homework Answers

Answer #1

Current market price of a put option is lower then strike price of the put option, it means that the put option can be exercised because the share prices already gone down beyond the expectation of the option holder.

Hence I would look to exercise the contract and realise the profit as the current market price is lower than the strike price.

So I would sale out my put option, in the market as it is exercisable now and I would try to realise my profit. This would be my decision because option is now not in the money and it will realise my gains

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