If you BOUGHT the XYZ Jan 40 Put pictured above...
You would PAY $3.50 x 100, or $350 for 1 contract. This is because option contracts generally represent 100 shares of the underlying stock, but the option price is quoted on a per share basis.
You would have the RIGHT to EXERCISE the option, which would allow you to SELL 100 shares of XYZ stock for the strike price of $40.
You would have this right until the option expired in January. Expiration for equity options is the the 3rd Saturday of each month. The last day to trade them is therefore the Friday before the 3rd Saturday. | If you SOLD SHORT the XYZ Jan 40 PUT pictured above...
You would RECEIVE A CREDIT in your account of $350 for 1 contract.
You would have the OBLIGATION to BUY 100 shares of XYZ stock for the strike price of $40 in the event that you were ASSIGNED. Assignment occurs when the buyer of an option exercises it. When this happens, traders who have sold the PUT option short are randomly selected to BUY the stock from the person exercising the option.
Your obligation would last until the option expired or until you closed your short position by purchasing (buying to close) the option. |
