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Marianne:
I believe the option exchange where the buyers and sellers of options "do
business" at guarantees performance of these option contracts. Whether you
sell or exercise the put, the person on the opposite end is obligated to
contractually perform his end of the deal.
Having said that, I think the 2 scenarios you face are as follows:
1) Own no stock and own the put option.
2) own stock and also own the put.
In scenario 1) you are a speculator. in which case you will make a tidy
profit after you SELL your put. Stock ownership is not an issue here.
In scenario 2) your put acts more as an insurance policy on the stock
previously valued at $ 300. The puts have "insured" you from a $ 300 point
drop in the stock unlike those persons unfortunate enough not to have
purchase the put.
Comments and feedback appreciated.
Thanks,
Marshall M. Liu
Sr. Systems Analyst
(818) 549-6269
marshall.liu@xxxxxxxxxxxxx
> -----Original Message-----
> From: Marianne Seehusen Ditz [SMTP:marianse@xxxxxxxx]
> Sent: Wednesday, September 30, 1998 1:43 PM
> To: metastock@xxxxxxxxxxxxx
> Subject: Re: Bankrupt ?
>
> Thanks to all who have answered my question.
> As I understand this: you purchace some naked puts (not covering up) at
> strike 300,
> the shares are going to zero, the market maker is obliged to buy it back
> at
> 300 ?
> How can he do that when the company has gone bankruptcy ?
>
> Normally you would trade all the way down. Let me say you have an old
> aunt,
> who is hiding the put option in a drawer, the stocks have gone to zero.
> Two
> days before the expiration date, she is exercising it. Will she then get
> some money (not stocks which are worthless) ?
>
> :-) Marianne
>
>
>
> -----Original Message-----
> From: A.J. Maas <anthmaas@xxxxxx>
> To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
> Date: 30. september 1998 17:27
> Subject: Re: Bankrupt ?
>
>
> >At the Amsterdam Exchange there is this "gentleman" agreement
> >between the AEX-administration and the floor, wich forces the
> >market makers to always make and keep a market in a option-serie.
> >In that, it will trade at "Best price" level.
> >(You might not get the true 300 but say around 280-295).
> >
> >There will always either be an implementation of this agreement or
> >that another market party, market maker self or the writers, will be
> >'intrested' in taking over your position, by buying it from you.
> >
> >Regards,
> >Ton Maas
> >Ms-IRB@xxxxxxxxx
> >
> >
> >-----Oorspronkelijk bericht-----
> >Van: William F. Nakielski <frt1000@xxxxxxxxxx>
> >Aan: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
> >Datum: woensdag 30 september 1998 8:52
> >Onderwerp: Re: Bankrupt ?
> >
> >
> >>
> >>-----Original Message-----
> >>From: Marianne Seehusen Ditz <marianse@xxxxxxxx>
> >>To: MetaStock <metastock@xxxxxxxxxxxxx>
> >>Date: Tuesday, September 29, 1998 04:50 AM
> >>Subject: Bankrupt ?
> >>
> >>
> >>>All :-)
> >>>Just a question. If a Blue Chip is worth $300, and you expect it to go
> >>down,
> >>>you buy puts. In case the company went to zero, who is then going to
> pay
> >>you
> >>>the money you can claim ?
> >>>
> >>>Any answers will be appreciated, thanks.
> >>>
> >>>:-) Marianne
> >>>
> >>++++++++++++++++++++++++++++++++++++++++++++++++++++++++
> >>
> >>I'd like to add a little to the discussion.
> >>
> >>So someone buys the put when the company is at 300. Okay.
> >>
> >>The company then goes to Zero.
> >>
> >>That someone's got a really high priced put. Very profitable...or is
> it.
> >>
> >>You could say sell that put and take the profit, but even before the
> stock
> >>hits bottom you'll have an extreme in the money option with very little
> >>liquidity. Seems like you might have a hard time getting rid of it.
> >>
> >>Okay, so thats out. So exercise is the next strategy. I think I'm
> right
> >>here, but let me know if I'm wrong. The put seller is charged with
> buying
> >>the stock back from me at 300, right? But if the stock is at zero, or
> in
> >>bankruptcy, or trading halted permanently, then how do I get the stock
> to
> >>sell him. If the stock were freely trading say at 10, then a trade
> could
> be
> >>made...here's your $10 stock I'm selling to you for $300. But for these
> >>purposes we can't get any stock for the putseller to buy. Follow me?
> >>
> >>So it sounds to me like we have some worthless puts.
> >>
> >>Or am I all wet?
> >>
> >>Thanks for the discussion.
> >>
> >>Bill Nakielski
> >>Milwaukee, Wisconsin USA
> >>
> >>
> >
> >
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