Options Trading Tutorial

Buying a put option - question about strike price?

So, I want to buy a put option a stock that is currently trading at $1.50/share. The lowest strike price available is significantly higher than the current market price ($2.50). Lets say I purchase the $2.50 strike price and the stock drops to $1.00/share. What will happen? I have never seen a strike price higher than the current market price for a put option.

Public Comments

1. A
2. yes
3. well, then you obviously haven't been working with options for very long then. lol if your strike price is 250, and the underlying is trading at 150, and the underlying subsequently drops to 100 by expiration, then you would make a bit less then 50, because you would be paying a time premium now. your potential profit would be (Pnow - Pexp) - Pput subject to the limit that profit cannot be less than -Pput
4. straddle it.
5. <<<So, I want to buy a put option a stock that is currently trading at $1.50/share. The lowest strike price available is significantly higher than the current market price ($2.50).>>> With the possible exception of an adjusted option, you will never see a stock option traded on an American exchange with a strike price under $2.50. Current rules do not allow lower strike prices. (I suppose that rule could change, but I don't think it will.) <<<Lets say I purchase the $2.50 strike price and the stock drops to $1.00/share. What will happen?>>> If nothing else changes, the value of the option will go up somewhere from $0.25 to $0.50 per share. (The exact amount depends on other factors, such as implied volatility and time until expiration.) However the odds of the stock dropping 33% without something else happening are very low. <<<I have never seen a strike price higher than the current market price for a put option.>>> There is almost always at least one strike price higher than the current market price. (The same strike prices are used for puts and calls, so if there is a call with a higher strike price there is also a put with the same strike price. If your quote source does not show them it is time to get a new source for quotes. I recommend http://www.cboe.com/DelayedQuote/QuoteTable.aspx for delayed market quotes.)
6. the put option premium will increase.