How can a put expire ITM and still lose money?

1a2b3cppp · Apr 28, 2011

Quote from athlonmank8:

How'd you get through security?

I'm half ninja. I slipped by while they were interrogating people who use SCT and some guy who had himself tangled up with Prof Logic's ergodic "system," and then I easily limboed under a Fibonacci retracement and here I am

Also, I'm not a bad trader; I just don't know anything about options.

Eliot Hosewater · Apr 28, 2011

Quote from spindr0:

And once again another troll takes it up the Zarkon

BTW, I stared at the OP's heat map for 2 minutes without blinking and I saw Walt Disney's profile !!!

On the planet Zarkon an Iron Condor has 13.71 legs.

ForexForex · Apr 28, 2011

1a2b3cppp to reduce the risk you could sell the QQQ Aug 2011 52.00 put for $0.66

http://finance.yahoo.com/q?s=QQQ110820P00052000

Buy QQQ Aug 2011 55.00 put @ $1.19
Sell QQQ Aug 2011 52.00 put @ $0.66
Debt $0.53 - Maximum loss $53.00

If the QQQ reaches $54.55 by August 13 - I week before expiry - you would break even, give or take a few pennies.

sumfuka · Apr 28, 2011

123,

I think there is something wrong with your data on the heatmap thingy. If the put option is ITM you won't lose money. It's in the Money, you only lose when its far away from your strike.

spindr0 · Apr 29, 2011

Quote from sumfuka:

I think there is something wrong with your data on the heatmap thingy. If the put option is ITM you won't lose money. It's in the Money, you only lose when its far away from your strike.

Any chance you could provide an example of this, eg. with real quotes?

efficiency · Apr 29, 2011

Quote from spindr0:

Ummm, d'ya think that might have something to do with what the put was bought for?

@ v @
(eye roll)

LOL

Mike Okistini · Apr 29, 2011

Quote from sumfuka:

123,

I think there is something wrong with your data on the heatmap thingy. If the put option is ITM you won't lose money. It's in the Money, you only lose when its far away from your strike.

You know if you buy a $55 put and the stock is at $55.01 at expiration you lose money. Hmm that does not seem far away from the strike....

Maverickz · May 1, 2011

Quote from 1a2b3cppp:

According to this, a 55 Aug QQQ put will lose money if it is $54.55 by August 8th.

Why?

$54.50 is ITM for a 55 put, is it not?

(the numbers on there are ROI as a percentage of maximum loss, NOT dollar amounts. For some reason, you cannot select dollar amounts for buying calls/puts on that calculator, although you can for other strategies)

The answer to the question as it relates to the chart is time decay. Part of the premium that you paid when you bought the put was "Time". This portion of the premium will be gone at expiration and your option will need to be ITM by an amount GREATER than you paid for the time in order to be profitable.

Random.Capital · May 1, 2011

Quote from 1a2b3cppp:

So what I read about options expiring ITM and being profitable was not correct?

ITM means exactly that - ITM. Profitability is a different question.

I very much doubt you read anywhere that an option finishing ITM gives the holder a "profit". CAN give? Yes. DOES give? Only if you bought it at the right price and it finishes deep enough ITM.

nkhoi · May 1, 2011

How are the earnings from Options trading reported to IRS by brokers?
BY ADMIN, ON OCTOBER 23RD, 2010
Question by xlcr: How are the earnings from Options trading reported to IRS by brokers?
I have some earnings from trading in options on stocks in the share market. My broker has informed me that no form 1099 is issued in respect of earnings from options trading. That being so, how does the IRS know what earnings an options trader had in a given year?

Best answer:

Answer by wartz
They are not reported.

Ever wonder why IRS doesnt require broker to report on option?