Exercising Options question. Please check my math

Question

I'm spending some time learning options and I have a scenario question. I'm attempting to have this make sense in my head but this just doesn't seem right or maybe I'm missing something.

I see this put option here:

Last trade date:
2019-08-19 12:09AM EDT  
Strike
70.00   
Price
13.50
Bid
23.10
Ask
23.60
Change
0.00

This is a very old ITM put option. The last sale of the underlying stock is $45.50. The price listed for the option is well below the bid/ask range. If this price is correct, it looks like I could buy this option for $1350.00 and immediately exercise it(not hold it) for:

(70-45.5)*100 = $2450.00

Subracting the $1350 originally paid for the option and marginal fees, I would make a profit of about $1000. Is my math correct here?

I'm aware that in addition to the paying the $1350 for purchasing the option, I would also need to put up the $4550.00 to buy the stock for exercising the option, but am I missing something? It looks like, theoretically, I could buy this option and immediately exercise it for an immediate profit of $1000. Am I correct about this? Just sounds a little too good to be true.

Answer 1

No, you are not correct about any of this :->)

Yahoo is notorious for bad data and this is no different. Note the trade time (options don't trade just after midnight) and the $70 put supposedly traded well below its intrinsic value. That's not gonna happen (see LYFT's price range that day or either adjacent day).

The main problem here is that the last trade was $13.50, somewhere around a month ago when LYFT was in the $57 to $58 range. The current price per your link is $23.10 x $23.60 and even that is bad data.

The current price of LYFT in real time is $43.04 and the $70 put is $26.80 x $27.10 That means that the put has $26.96 of intrinsic value which falls almost midway b/t the current B/A of the option.

The short answer?

(1) If it looks too good to be true it usually is

(2) There are no free lunches

The open interest of zero means that there are no existing contracts. You can buy or sell this or any other option at any time prior to expiration if you are willing to trade at the bid or ask.

As an aside and unrelated to your question, if there is a pending ex-div date, option premiums reflect it. Puts will increase in value and the calls will decrease. If the dividend is large and the ex-div date is imminent, you may see deep ITM calls trade below parity (less than intrinsic value). This discount (what you thought that you saw in the LYFT put) is the main reason that causes early assignment of short calls.

Answer 2

The $13.50 is the last trade. You can already see the current bid/ask, meaning the $13.50 is history, literally.

The chance of an actual mis-match like this occurring is slim to none. Computers are programmed to catch opportunities to grab any pennies they can find.