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An option is a contract, Marianne.
When you hold an option, you have the choice to exercise it or not.
The writer (seller) of the option has a legal obligation to perform on your
demand. You can bet that his uncovered put writes will not stay hidden in his
uncle's drawer while the stock drops from $300 down to $1. As you wrote, his
contract will change hands any number of times. Perhaps he will cover by
shorting the stock or buying puts. He might even sell calls. :^)
Larry
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Marianne Seehusen Ditz wrote:
> 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) ?
>
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