r/wallstreetbets • u/DegenOptionGuy 💎Diamond Testicles💎 • 1d ago

Gain 27k -> $765k BABA $125p 4/4

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36

u/da_crackler 20h ago

I feel like you got lucky with the fill

163

u/DegenOptionGuy 💎Diamond Testicles💎 20h ago

It actually topped out at like 11-12 I left like 250k on the table

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u/Anal_Recidivist 20h ago

I’ve been working up the knowledge on this stuff and understand the concept of calls/puts, how the calculation works, etc.

But when you sold your puts, who bought them? Investors/funds or sold back to market like any stock?

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u/YouHaveFunWithThat 19h ago

Just guessing but based off the price of the stock when OP placed their limit order, the shares dipped low enough for the intrinsic value of the puts to be higher than OPs sell order. I’d imagine there are algos designed to snap those up, immediately exercise them and resell the shares for a profit. It’s free money if you have the capital to exercise the contracts and the software to execute the trades fast enough.

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u/Temporary_Pay5262 19h ago

and to whom are they selling?

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u/YouHaveFunWithThat 18h ago

I accidentally described exercising calls but they’re just sold on the open market. Puts are basically the same though except backwards. A 125 put gives the buyer the right to sell 100 shares at 125 each. With OP selling them at 8.50 each the puts effectively give the buyer the ability to sell shares of Alibaba for 116.50 each. If the price of BABA goes below 116.50 while OP still has their limit order for 8.50 open, anyone could buy shares at market price, then buy the contracts and exercise them for a small, but guaranteed profit. All they need is enough capital and/or margin to buy 100 shares per contract.

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u/Anal_Recidivist 15h ago

Brother thank you, this made so much sense. I get “it” now.

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u/DillonMeSoftly 15h ago

To put it simply, if you're asking who's getting boned here, it's the people who initially "gave birth" to those options for the initial premium. They started a contract and just like the non stock version of a contract, they have to adhere to them. Sometimes the win, but this time they got utterly fucked

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u/soulstaz 14h ago

Honestly I don't get why anyone really sell the original contract options the risk seem insane.

Make 27k from the original price and then you have to pay up 750k$ in contract value to buy those shares.

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u/ThreeEyedAngel 13h ago

If it’s a market maker that’s selling them, they hedge. They’ll short the stock if they sell puts and go long the stock if they sell calls