What strategy is that ?

[XxQuote399]

The Market is trading at 100 and I have a put at 120, in what scenario does this strategy gives profit ?

Thanks

 

[Hotch]

Depends what type of put it is. Depends if you buy it at a fair price. etc etc etc

Generally you'd expect that If you exercise the put when the underlying is at a price lower than 100, you will make a profit, if it covers the...thingy...premium. Go read wikipedia.

 

[JSO]

Assuming you buy the put and the premium you paid for it is less than the difference between the market price and put stoke price, you make money if you exercise the option. Or you can also close the put option to collect the profit.

 

[tomorton]

Xx - are you testing us or do you need to find out?

 

[XxQuote399]

Oh sorry for dont open fast I didnt read that the mail doesnt atualizes if you dont open the page again

I really needed to know , ive done a research and find out is about deep in the money options so they act as the underlying because the delta is 1

Ive really was confused about the terminology of buying a put above the market level

 

[JSO]

Buying deep ITM options is akin to buying the underlying stocks/equity and the advantage is you spend less than you would buying the underlying. e.g. for GLD currently at $158, if I buy 100 shares of it, that would cost me $15,800.00 (less commission). But if I were to buy deep ITM options like a 150call contract would only cost me $995 for equivalent 100shares for GLD. The delta for 150 call is 0.96 and that means that for every $1 move of GLD, the options will gain $0.96. This strategy is when your prognosis is bullish for GLD. As for Puts, the prognosis is the opposite i.e bearish, and the strategy is to buy Puts that is deep ITM. Buying above market level (GLD at $158) means buy Puts at 170 strike with delta of -0.96 (deep ITM). So when GLD moves $1 down, the put will gain $0.96 because of that. (opposite to deep ITM Calls)
One of the key take away of buying deep ITM options is that it cost you less than buying the underlying itself but you enjoy the possible gain when the underlying moves in your direction.