Option Confusion...?

Question

Hi, i was looking at some of the portfolios on Investopedia for some option investors and i found one that said the guy had a put option position for AAPL with a strike price of $30 and a gain in total of $2.2 million. How is the premium so high? i though it was based on the instrinsic value and time value among other factors. For a put doesn't the underlying asset's price have to decrease in value in order for the option to be in the money?

the link for this investor's portfolio is:

http://simulator.investopedia.com/rankings/ViewPortfolio.aspx?UserID=609898&GameID=1

Answer 1

You are absolutely right that it makes no sense, for a number of reasons. The most obvious reason is that the a put with a $30 strike price can never be worth more than $30. No one would ever pay $130 for the right to sell an asset for $30.

I am, however, pretty sure I understand how this happened. At the time the WAAMF option was purchased it probably was a $30 put on AAPL with a Jan 2008 expiration. However, earlier this year the WAAMF option was converted from a LEAPS option to a normal option and the symbol changed from WAAMF to AAQMF. Later, 2010 LEAPS options were issued, and the symbol WAAMF was assigned to the January 2010 put option with a strike price of $310, and the current quote for a WAAMF option is around $130.

The investopedia simulator should have converted the original WAAMF symbol to AAQMF, but it appears there is a software flaw in their simulator and it failed to make the conversion. As a result the software now thinks he bought the current WAAMF option for $0.55, something he never could have done.

Answer 2

Im not sure how the year system works where you are, but I'm guessing these are GCSE choices? I did Maths, Additional Maths,English Language, English Literature, Short course RE, Chemistry, Physics, History, French and Design and Technology and the only one I regreted was Tech. I was made to do maths, english language, english lit, french and RE, and I had to choose one science but apart from that I could have chosen anything. I know most schools in england don't offer add maths, but if yours does take it. It was one of the best choices I made and it gives you a great headstart to AS level maths without being overly difficult.Chem and Physics were interesting and fun IMO. English Lit bored me a bit, but I didn't really have a choice in the matter and I'm sort of glad I did it now because it means i'm good at anaylsing things. History has always been seen as a fun subject in my school cos all 3 of our teachers are pure awesomness lol. If its A level options you're talking about, I do Chem, Physics, maths and further maths cos I enjoy all of them.

Answer 3

In binary options you will have the possibility to predict the movement of various assets such as stocks, currency pairs, commodities and indices. Learn how you can make money trading binary options https://tr.im/Ist65
An option has only two outcomes (hence the name “binary” options). This is because the value of an asset can only go up or down during a given time frame. Your task will be to predict if the value of an asset with either go up or down during a certain amount of time.

Answer 4

I looked at the claim. I THINK the investor Bought To Open [BTO] LOTS of Out of The Money [OTM] contracts at $55/contract and sold to close [STC] them when Apple had a pullback.

Options do not have to be held until the expiration date. When an investor does that, he/she may want the option to be exercised.

I had it happen quite a few times. I bought the extra time and didn't need any of the time. The options I bought achieved my target price and I exited the trade.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

Answer 5

The current value of the asset doesn't have to change (though it usually does) - just the future value within the date of the put.

I agree, it doesn't make sense.