Films/DVD Asylum

Posted by WinthorpeIII (A) on December 21, 2006 at 19:53:26

In Reply to: if I get it... posted by dave c on December 21, 2006 at 19:13:31:

The investor has the money in the stock option. The option becomes worthless if it is "out of the money" on the expiration date. In other words if the stock has not moved to an advantageous point to the option holder. Of course, it would take some somewhat extreme conditions for the guy to lose all the money, but certainly possible. Normally the option price would devalue and the investor might sell it for what he could get.

The investor does not own the stock -- he is trading the option, which may become worthless on the expiration date.

AMD at $20.95

If this were the price on the expiration date:

$20 call option worth .95, $15 call option worth $5.95
$20 put option worth 0.00 (who would want to sell a $20.95 stock at $20?), $15 put option worth nothing too. $30 put option worth $9.05.