So what is in it for the options trader that bets against a strike price ever being reached?

Question

So if an option does not get to an exercise point, what happens?

Answer 1

Those who bet against the strike price ever being reached are called writers and for doing so they get paid by the options buyer. If the strike is not reached then they can keep what they get for writing the option or selling it to you. What they get for writing is called premium or price of the options which is price of optons times 100 which is one contract. You cannot buy less than 1 contract which is 100 options.

Answer 2

That depends on how the trader bet against the strike price being reached.

One way of betting against the strike price ever being reached is selling an out of the money option. Morningfoxnorth's answer told you want would hapen if the bet was made by selling an out of the money call option. Similarly, sparky7193's reply addressed a covered call. Mathew C's answer also assumed the sale of an out of the money option.

However, if you go back to the AMGN spread I referenced in a previous reply to you, described at

http://messages.yahoo.com/Business_%26_Finance/Investments/threadview?m=tm&bn=4686677%23optiontradestraderecommendations&tid=3274&mid=3274&tof=1&off=1

I sold an in the money option as part of a spread, betting that the strike price would not be reached. Any time an in the money option is sold and the strike price is not reached, the option writers will be assigned and have to buy (if the option was a put) or sell (if the option was a call) the underlying for the strike price.

Do not forget the many option traders close positions before the expiration date. Once a position is closed it does not matter if the underlying reaches the strike price or not.

Finally, it usually does not make a difference if the strike price is ever reached. Instead, what usually matters is if the option is in the money or out of the money at expiration. For example, I sold some out of the money covered calls a few weeks ago while the market was still going up. The underlying stocks continued to go up and were trading above the strike price for a while. Then, with last weeks sell off, the underlying stocks went back below the strike price. It does not matter that they went over the strike price
for a brief time while the options were outstanding.

Answer 3

The option expires worthless. The option seller got the money for selling it, that's his profit.

If the strike price was reached, then the seller would have to sell the stock at that price. He would then have a loss on that sale.

Answer 4

He gets to keep the premium and profit. I have traded NSM 3 times and made money while the stock has been pretty much stagnant. It also hedges/protects your position to the downside.