Most options are not exercised, even the profitable ones.
When a buyer's option expires worthless, that means the seller gets to keep the premium as a profit for writing the option.
By put-call parity, a European put can be replaced by buying the appropriate call option and selling an appropriate forward contract.
The current price is 50 per share, woman looking for a man needed and Trader A pays a premium of 5 per share.Example of a put option on a stock edit Payoff from buying a put.The put option premium paid to trader B for buying the contract of 100 shares at 5 per share, excluding commissions 500 (R).The time value is determined by the remaining lifespan of the option, the volatility and the cost of refinancing the underlying asset (interest rates).A strike price is set for each option by the seller of the option, who is also called the writer.Put options are most commonly used in the stock market to protect against the decline of the price of a stock below a specified witham essex local newspaper price.Trading options involves a constant monitoring of the option value, which is affected by changes in the base asset price, volatility and time decay.A naked put, also called an uncovered put, is a put option whose writer (the seller) does not have a position in the underlying stock or other instrument.The option is worth approximately 6 because there other factors that affect the worth of an option aside from the price of the underlying stock.The graphs clearly shows the non-linear dependence of the option value to the base asset price.If the option is out of the money, then exercising the option makes no sense at all because money will be lost if the stock is sold on the market.The purchase of a put option is interpreted as a negative sentiment about the future value of the underlying.Only exercise the option if you want to buy or sell the actual underlying asset.Traders who have sold/wrote options contracts want the buyer's options to be out of the money and expire worthless on the expiration date.Exercising the option is beneficial if the underlying asset price is above the strike price of a call option, or the underlying asset price is below the strike price of a put option.
If the buyer does not exercise his option, the writer's profit is the premium.
One scenario that calls for letting the option expire occurs when you are holding a short position on an option that is out of the money.