Option exercise

S

stockoptionstrader

Hi all,

I was reading option chains and I saw the following:

Stock price is at 20$.

I can buy a deep in the money put option for something like 40.12 $.

Strike price is 60 $.

So in this situation, I buy 1 put option for 4012 $. and I can exercise my option immediately.

So I buy the stock at 20 $ and I can sell it at 60$ that X3.

6000 $ X 3 = 18000$. 18000$ - 4012$ = 13988 $.

13988$ - 6000$ = 7988$ profit.

Is this possible?

Because you can triple the money, your option premium will never be too expensive.

What am I missing here?

TIA
 
Xaction #1: Purchase 1 PUT option @ $60 strike, for cost of $4012. (Your CASH is -4012, your position is +4012)
Xaction #2: Purchase 100 Shares of stock at cost of $20/share, or $2000. (Precursor to exercising put). (Your CASH is -6012, your position is +6012)
Xaction #3: Exercize your PUT option, which also uses your long position. (Your CASH is -6012 + 6000 from the exercise, and position is now zero)
You lost $12, not counting commissions and fees.

Note: you do not recover the $12 excess required to purchase the original PUT, since you exercise the PUT.
 
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