Quote:
Originally Posted by Patriam1066
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I don’t understand this at all. It’s Greek to me
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It means in return for guaranteeing i will pay 17.50/share for 300 shares in January, 3 people each paid me 382$ per 100 share contract.
The people who bought the contracts either
A) think the price is going to drop below (17.50 - 3.82 =) 13.86, in which event, on expiration day, at market close, plans to buy 100 shares from the market at the going rate (say for example 12.00) and then force me to pay them 17.50 for it (netting themselves 100 x 5.50 in net profit minus the 382 they paid up front, so 166$)
Or
B) someone is using my obligation to buy 100 shares at 17.50 to hedge against further losses below 17.50, since they own shares and are worried about a major price drop such as one which would occur in insolvency leading to bankruptcy.
Or
C) bought the contract as part of an options spread, such as a put-credit spread, or an iron condor spread etc.