What If You Guessed Really Right?

[Arnie Guitar]

Hypothetical:

You bought a Put Option of a $100 underlying,
and it tanks BIG time, goes to single digits.

You want to sell but probably can't even get the intrinsic value, right?
There'd be no buyers, right?

Would you get filled?
Would you have to accept a reduced price?

Just curious.

 

[newwurldmn]

You would not sell it for less than intrinsic because you can buy the shares and exercise.

 

[earth_imperator]

How much DTE left?
Is letting it expire not an option? B/c then volume and IV don't play any role anymore.

 

[TheDawn]

Hypothetical:

You bought a Put Option of a $100 underlying,
and it tanks BIG time, goes to single digits.

You want to sell but probably can't even get the intrinsic value, right?
There'd be no buyers, right?

Would you get filled?
Would you have to accept a reduced price?

Just curious.

Depends on the intrinsic value, how much time left to its expiration and the commission amount. If there is not much time left to expiration and the option price is getting really close to strike and the commission to close the position is really high then I will wait until expiration to exercise it especially if the broker charges zero for exercising I will just wait to get it exercised. No point incurring an extra commission when you are not going to get much more intrinsic value over the strike especially with a reduced price. And many times the underlying might even make a dramatic move down right before the expiration during power hour and if you close it before with a reduced price, then you are even getting less than what you could've gotten through exercising. This is especially true with cash-settled options. With options for physical delivery, you might miss out less due to possible pin risk.

If there is a lot of time left to expiration and there is a lot of intrinsic value left that is significantly higher than the strike that you think the underlying will never be able to move down more to surpass it, that it's just too good to be true, I might consider closing the position especially if the reduced price that I would have to put in doesn't reduce it that much and it's definitely worth the commission that I would incur. But of course if the option is REALLY illiquid in that I would have to reduce the price by a LOT to the point that it's no longer worth it then I might consider waiting to exercise especially if I think the underlying might move down more.

 

[smallfil]

Hypothetical:

You bought a Put Option of a $100 underlying,
and it tanks BIG time, goes to single digits.

You want to sell but probably can't even get the intrinsic value, right?
There'd be no buyers, right?

Would you get filled?
Would you have to accept a reduced price?

Just curious.

If you can sell the option, sell the option at the current market price. If not, the put seller has an obligation to buy the stock from your at a set price, say $100. Stock is down to $5.00. You buy 100 shares of the $5.00 stock, costs your $500.00 and sell the same stock back to the put seller for $100 x 100 shares or $10,000.00-$500.00 cost of stock. Your net profit is $9,500.00 minus the cost of the premium you paid for the put option. And intrinsic value is never lost but, only the time value of the option. You will have buyers unless, the stock option you bought is very thinly traded and has very few open interest left. If you have hundreds of contracts in open interest, there should be more than enough buyers.

 

[The_Krakenite]

How much DTE left?

The problem with DTE, is it has very little effect when there is a very deep ITM move like this. Any time you drop a few standard-deviations, time value goes to 0, even if you still have months left before expiry.

Think about it. Even if you have what are lots of (days) TIME left, when the VALUE of that time is nothing, your days means nothing. Time x 0 = 0.

How did I learn this so well? I got busted up in the historic NetFlix fiasco, and learned this first-hand... the hard way. I got hit by early assignments when the standard books will say you have nothing to fear. Only an idiot would assign weeks in advance. WRONG!

There is a certain point, where once you drop that far, rolling to add a years' of extra days into the contract will barely change the price of the option, as it is STILL expected to expire deep ITM.

Those who are new to options and think they can magically use the 'Wheel' as some sort of magical self-perpetual money-making machine will find out the hard-way why it is doomed to fail. It may seem to work for a while, which is why so many 'Youtube' gurus will swear by it to their followers.


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Edit! So I thought the OP was referring at first to shorting PUTs. In any case, my same argument applies when you think of it.

You want to sell but probably can't even get the intrinsic value, right?

The OCC still has your back. Don't worry about it.

 

[earth_imperator]

@The_Krakenite, can you post a real or hypothetical setup for studying in an option pricing model?

 

[taowave]

For F$%k sake,just listen to NWD...You want to close,options are 3 dollars wide,buy the stock..
If you want to look smart,factor in carrying cost -div...

Dawn,you are talking commisions? Are you caught in a time machine??

What are the rest of you guys smoking???

 

[spy]

For F$%k sake,just listen to NWD...You want to close,options are 3 dollars wide,buy the stock..
If you want to look smart,factor in carrying cost -div...

Dawn,you are talking commisions? Are you caught in a time machine??

What are the rest of you guys smoking???

People want to suffer. It's part of human nature or maybe the Judeo-Christian ethic; both. They always think there's some clever trick. God forbid we take things at face value and accept them for what they are.

 

[TheDawn]

Dawn,you are talking commisions? Are you caught in a time machine??

Taoman!!!! So this is what it takes to get you out of the mud, me posting on an Options thread offering my own opinion of what would I do in a trading situation? LOL

The OP was asking for everybody's personal opinion to see if we would take a reduced price in closing a really ITM long option early in a very illiquid market so I was giving my personal opinion of the thought process that I go through in arriving at my trading decision. In my thought process, I do take commission into consideration. To you institutional people, it might not matter much but to us retail traders, commissions can be a significant cost at times. And if you can save them by holding them until expiration to exercise free of commission why not? A dollar saved is a dollar gained.

In my analysis, I do give priority to price and future volatility in formulating my trading decision but commissions is what I consider too especially when it's an illiquid market and you have to take a huge reduction in price just to close early. And I will tell you from my personal experience, it's absolutely worth it to hold the position until expiration and just get it exercised. I tell you, every single time I close the position early, I end up regretting it because the underlying always always ends up making a huge move going up/down during the power hour that if I had held on and just exercised, I would've gained a LOT more. And paying a commission on top of that just to close the position with a reduced price just adds salt to the injury sorta speak. Like I said, this is just my personal take. Not trying to look smart or anything. I have nobody to impress here. LOL

For F$%k sake

Btw, that is the most colourful anagram that I have ever seen for ET's favourite word. LOL What did you do? Playing drunken scrabble again? LOL

And time travel is just AWESOME!! Make love, not war!! Peace man!! LOL