Options Trading Tutorial

What happens when the price of a put and the strike price are the same? ?

Doesn't this basically eliminate the risk? Wouldn't the premium received buy the shares if the stock were put to you?

Public Comments

1. Assuming you have your terms correct and there is no slippage or commissions, yes.
2. Yes, that would eliminate the risk. For that reason you will never see it happen with an unadjusted option. It is possible you could see it for an adjusted option, where the multiplier does not equal the number of shares. If you think you have seen an case where the quote indicates that you could sell an option for the strike price I strongly urge you to check for a contract adjustment at http://www.cboe.com/tradtool/contracts.aspx or http://www.optionsclearing.com/market/infomemos/info_memos_form.jsp
3. Only if that is what is charged by the writer (issuer) of the put and then he/she would not have any risk. Everyone else trading that option would carry a risk and the initial stupid purchaser of the put is guaranteed a loss unless the company goes bankrupt and then he/she may possibly be able to break even.
4. yes, you are right, it eliminates the risk for sellers.