I know that a put with strike $X can never be worth more than $X since the underlying can never go below zero. Is it also a rule (though maybe less hard-and-fast) that the maximum value an ATM put can have is $X/2? I think this would be because only 50% of the time it would go down. This rule wouldn’t hold for underlyings that naturally decay (like uvxy).
Posted by senormorsa
1 Comment
What? Theoretically any put could be worth its maximum. Does it ever happen to an OTM or ATM put? Not really. But there’s nothing stopping an ATM put for a $10 stock trading at $7.50 or something if there’s massive news coming that is expected to significantly drop the stock price.