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.
9
u/Dependent-Goose8240 1d ago
Lol, I'm actually really shit at making money in a bullish market, but I'm not that bad in a bearish market