Gladly, he purchased the 534 put on Wednesday midday, prior to tariff announcement, when the market was still bullish for some insane reason. When a bullish SPY is at 565 and you're buying a put for 534 that expires in two days, its gonna be very cheap (contract price at $0.20 per share).
Then the market took an absolute nosedive to the point this "highly unlikely" move ended up not just in the money, but fucking DEEP in the money. So the put was sold this morning when spy was around 520. If he had sold it at closing, his contract would've been worth approx $3,000.
If he had put in $200 instead of $20 initially, final payout could've been $30,000.
Interesting, I would believe if the stock did not reach 534 he would have just been out 20.
So you can make make money in an upward market and a downward market.
Thanks Goose8240!
So what happened was OP thought the stock was going to fall and bought a contract for a put at X dollars for .20.
Once the price fell to his strike price of whatever it was he basically earned the difference from opening price to his strike price.
the gain would be the difference in the price at X dollars and the strike price times the about of contracts. Right? Or am way off?
Yes but note the reason these contracts even buy and sell is because the idea is someone will play the premium to actually exercise the option (I.e. buy the 100 shares for the contract price), but if you don't have the shares to sell (put) or funds to buy (call), then the exercise just expires worthless. You can trade the option by making profit off the premium difference (which is where it goes from 0.20 to whatever). The price of the contract isn't just the difference in price, its also based off the time from expiry and other factors. So even if you're out of the money (not in contract price) but the stock has been falling steady, your premium on the contract you own is going to go up in value, sometimes much more than the difference between the stock price and contract price.
8
u/aeclipseguy 1d ago
Can some one explain this trade to me and how did it work?