Miss Bubbleburster on the other hand made a decent net income on Hype ‘s crash. She did n’t want to risk shorting the stock, but she wanted to bet on it falling so she bought a put option for $ 0.50 with a hit price of $ 13 when the stock was complete $ 15. This gave her the option, but not the obligation, to sell the stock at $ 13. If she waited cashbox termination when the malcolm stock hit $ 10 she could have made a $ 3 net income on each option. however, when the stock price fell to $ 12 these put options increased in rate to $ 1.65 and she sold them there.
Mr Haggle was on the early english of Miss Bubbleburster ‘s inaugural trade. He thought Hype ‘s occupation was a dependable one and he wanted to own the stock finally but thought the $ 15 price tag was excessive and was bequeath to wait for a better price. So he decided to sell a put option with a strike price of $ 13 and he collected a agio of $ 0.50 per choice, so $ 50 for one narrow. His idea was as follows : he will collect this premium regardless of the price of the stock. In case the stock is under $ 13 upon termination, he ‘ll need to buy the stock for $ 13, regardless of the actual price. In the example above, this is precisely what happened. however, he ‘s calm much better off than if he had bought it at $ 15 alternatively of doing the option trade. besides note that when Hype beginning touched $ 16, Mr Haggle could have closed his trade buy buying for $ 0.10 one compress of the put he had sold previously. In this case, his internet profit would have been 10 x ( $ 0.50 – $ 0.10 ) = $ 40 minus the commission.
Reading: Can you trade options at Fidelity?