Options trading beginner question

[THEMAKKER13]

Hello, I'm just getting into options trading. I am of the opinion that we are going to enter a bear market, and am looking to purchase put options for stocks. However, I'm confused as to the meaning of the options table. There's a stock that I'm looking at that currently trades for about $38/share; yet there are put options available with a strike price of 60. Wouldn't this mean that I could purchase the stock for $38/share, and then immediately sell it for $60/share? Surely this can't be correct, so my question is, what am I missing?
Thanks for any help.

 

[options-george]

Hello, I'm just getting into options trading. I am of the opinion that we are going to enter a bear market, and am looking to purchase put options for stocks. However, I'm confused as to the meaning of the options table. There's a stock that I'm looking at that currently trades for about $38/share; yet there are put options available with a strike price of 60. Wouldn't this mean that I could purchase the stock for $38/share, and then immediately sell it for $60/share? Surely this can't be correct, so my question is, what am I missing?
Thanks for any help.

$60 put options give you the right to sell the stock at $60.

If the stock is currently trading $38, then the put option would be worth at least $22/share (i.e. the intrinsic value) plus there would also be time value option - depending on the option's expiration date.

So yes you could buy a put and immediately exercise it, but the profit from the exercise would be less than what you would have paid for the option (well actually a loss, because of time value and transaction costs).

 

[THEMAKKER13]

$60 put options give you the right to sell the stock at $60.

If the stock is currently trading $38, then the put option would be worth at least $22/share (i.e. the intrinsic value) plus there would also be time value option - depending on the option's expiration date.

So yes you could buy a put and immediately exercise it, but the profit from the exercise would be less than what you would have paid for the option (well actually a loss, because of time value and transaction costs).

Thanks for the clarification George.

 

[lawrence-lugar]

 

[options-george]

Thanks for the clarification George.

You are welcome. Fire away if you have more questions in this area. It's always fun for me to cast myself my memory back to my option-trading experiences