Option Education

[Newly2b]

BTW, the problem with your scenario of selling a Feb 17.50Put on a stock trading at 16.51 today is that there is no guarantee the option will be exercised before expiry.

Your risk is unlimited if the stock price falls, and limited to the prem received if it rises. IOW, if the price of the stock falls, the price of the option will rise and unless you buy it back, losing money on the trade, you may have the stock put to you at expiry at a price far above what you would pay for the stock outright in the market at that point. If the price of the stock rises, it may no longer be ITM at expiry, although you will still get to keep the premium you received for selling the Put, you just won't get the stock put to you.

One sells a Put or buys a Call when one expects a stock's price to rise. One sells a Call or buys a Put when one expects a stock's price to fall.

Newly