This is a question for all the options experts out there. I am a beginner who is learning to trade options. I had a question regarding Deep-In-The Money options.
Suppose I am Long (bought) a put option for a stock priced at a strike price of $12 and lets assume the stock is currently trading at $11. Thus, my options as In-The-Money.
My goal is to sell to close the long puts at a higher premium. If the stock price goes down, the put premium would increase and I can profit from selling those options.
What if the stock suddenly gaps down to say $5 from $11 due to some bad news. When that happens, my options will be very Deep-In-The-Money.
The two questions I have is :
1) Since the put options will be very deep in the money, will there be anyone who will buy my put contracts. Will there be any volume at all at that strike price range ? Will I be stuck with the put options till the expiration ? I ask this because, i don't see a reason why another trader would buy my put options for such high premium and deep in the money.
2) What if I let those puts expire way deep in the money ? Scottrade, my broker, says the options will automatically get exercised. What does this mean ? Since buying puts means I have the right to sell the stock for the strike price, do I need to purchase the underlying stock at the gap down so Scottrade will automatically sell these stocks I bought at a higher price using my contracts.
Please excuse my weak knowledge on options as I am a beginner. Thanks for your time in advance !
Suppose I am Long (bought) a put option for a stock priced at a strike price of $12 and lets assume the stock is currently trading at $11. Thus, my options as In-The-Money.
My goal is to sell to close the long puts at a higher premium. If the stock price goes down, the put premium would increase and I can profit from selling those options.
What if the stock suddenly gaps down to say $5 from $11 due to some bad news. When that happens, my options will be very Deep-In-The-Money.
The two questions I have is :
1) Since the put options will be very deep in the money, will there be anyone who will buy my put contracts. Will there be any volume at all at that strike price range ? Will I be stuck with the put options till the expiration ? I ask this because, i don't see a reason why another trader would buy my put options for such high premium and deep in the money.
2) What if I let those puts expire way deep in the money ? Scottrade, my broker, says the options will automatically get exercised. What does this mean ? Since buying puts means I have the right to sell the stock for the strike price, do I need to purchase the underlying stock at the gap down so Scottrade will automatically sell these stocks I bought at a higher price using my contracts.
Please excuse my weak knowledge on options as I am a beginner. Thanks for your time in advance !