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>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 ?
Anyone is alowed to buy it, but the market maker IS OBLIGED to keep a market
in your put-serie. The writer of this put is at risk. The writer as such could
be you or me or anyone else or any firm for that matter.
>How can he do that when the company has gone bankruptcy ?
The option in your possession is your legal right to the options "properties".
The underlying company has got nothing to do with any of the option rights or
obligations stemming from them(the properties), as these are pre-set on introduction.
Neither has an underlying company got anything to do with the Option Exchange,
eg. the company is listed on the Stock Exchange.
>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
With that put option being excercised she will NOT get the underlying 'delivered'
as with the put in her possession she had the right to sell to the writer the underlying
at the pre-fixed price of 300. This writer will now have to meet his obligation and pay
your aunt the lumbsum of 1x300x100=30,000. Your aunt will have to deliver the
underlying, wich she can purchase at the stock market for 0. When the underlying is
then not available, your aunt could raise her buy order to say 0.50. Then at some
stage, the offering of the underlying by others will come trough.
If however your aunt decides to sell the put on or before expiration date, she is in the
hands of the above mentioned demand/supply options market. For her then the only
best way out, in this bankrupt-case, will be to sell the put "at best price". As such she
most certainly will not get the exact value, as it is an open market(demand/supply)
and it will be an illiquide serie.
Best Price orders will go before or on a daily market's closing rotation.
Reg. Ton
-----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
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