American Airlines AAL stock currently at $11.58.
I am able to buy a $20 put (expiring 10/04 in 6 days).
Why would someone want to buy a PUT at strike price higher than current trading price? Isn't put all about you think stock price will go down more than what it currently is?
Posted by Repulsive_Pool_4090
11 Comments
That option has 0 volume and 0 open interest. So no one actually has traded it.
If the stock goes down, the value of the put rises. Profit.
Deep ITM options have nearly zero extrinsic value so holders aren’t susceptible to decay.
Higher delta and less risk- sorta less risk…
If you buy a $20 put, you can sell the stock at $20. If the option price is X, you will profit if the stock is lower than $20 – X by expiry.
This is an “in the money” option (ITM). For a put this means you’re buying a contract with a strike price higher than the underlying stock price. For a call, the strike price would be lower than the underlying stock price. What you seem to be familiar with are “out of the money” (OTM) options. There’s reasons for both and the biggest difference is price. ITM options are more expensive than OTM but they have a little less risk.
Options too confusing lol
They want more negative delta. Possibly to hedge a long position.
Same reason(s) people buy ITM calls – intrinsic value, more breathing room in event that the stock does go up a bit before exp, as a hedge against an existing position
look up how ITM options work.
Having the right to sell at $20 becomes about a dollar more profitable when AAL stock drops a dollar. This is a pretty attractive way to put on that bet (thinking it will go down a dollar) without shorting the stock and risking it going to the moon.
Professionally, options are used to hedge and or change portfolio dynamics (hence it gives u options). You could buy a put ITM to cap losses in case of a downturn so you won’t incur taxable event by selling the stock.