What Did You Buy Today?

[Otter]

(04-03-2020, 02:39 PM)stockguru Wrote: Question about PUTS

Was thinking of buying PUTS in XOM. $35 strike price

I never bought options in my life lol. How does this worK?

I would like to buy XOM at $37. So looks like the 5/1 is going for $6.00

So my cost would be 100 x $6.00 = $600 correct?

And if the stock were to trade below $37 I would be in the money?  If it goes under $37 before the expiration can I still sell for a profit?

Sorry I'm a rookie lol

Those are pretty risky put options (weeklies). Given the short expiry, you could get absolutely destroyed by IV-crush and theta (time decay destroying the value of an option) if the price of oil and XOM continues to moon in the short-term. 

In the most general terms, you can typically make money re-selling a put option contract if the share price has declined below the point it was at when you purchased the contract. HOWEVER, this is where IV-crush and theta can wreck your plans. Imagine a scenario where you buy 5/1/20 XOM 35 Puts today, while XOM is at 37. If XOM suddenly plunges down to 36.50 tomorrow, you should be able to re-sell the option for a decent profit. Alternatively, there could be a scenario where XOM goes up to 40 in the next few weeks, then slowly declines to 34.90 by April 29, with a market expectation in the options market that it will be jumping back up in price soon (implied volatility, where the IV in IV-crush comes from). In that scenario, even though you are under the strike, your option is not profitable. After taking into account the premium you paid for the option, the two days remaining to expiry, market expectation of XOM rebounding (implied volatility), your option is worth less than you paid for it. There are a nearly limitless number of potential scenarios, and a large number of them result in those weeklies becoming worthless in a hurry.