# Buying a PUT OPTION in the Out Of The Money

The scenario is this. The price of a XYZ stock is \$150. I speculate that the stock price can go to \$200 and then retreat to \$160 in six months. Is it possible to buy a PUT OPTION at strike price \$199 that expires in six months, and then sell it when the price reaches \$160 before the expiration date and make a profit of 199 - 160 = 39?

Let me show you an example.

You said current price \$150 but at \$199 (we will use \$200 strike because strike prices comes in increments) you want to buy a put when stock is at \$200 and sell the put when the stock is at \$160.

So fast forward....the stock is \$200:

6 month put COST: \$17.50 @ 200 strike (costs \$1,750 per contract)

(remember the strike price is where you exercise or collect your shares whether its a call/+shares or put/-shares.

By 6 months: stock is \$160

Profit Formula: (strike price) - (current price) - (options cost) + (remaining time value)

Profit formula: \$200-\$160 = \$40 - \$17.50 = \$22.50 profit + (\$1-2 time value) (you can add \$1-2 time value if you sold after 3 months and option has 3 months time value left)

Basically you put in \$1,750 it became \$4,000 and your profit is \$2,250 for a 128.5% profit (\$22.50/\$17.50).

Any questions?

• Apart from your overly optimistic \$2 time value projection for 3 months remaining until expiration when the option is \$40 in-the-money, you might want to redo your calculations. \$200 - \$160 - \$17.50 isn't \$12.50 – Bob Baerker Dec 1 '19 at 15:24
• @BobBaerker thanks bob i edited my answer should be \$22.50 :) Nice catch! – Yoshi Onimusha Dec 1 '19 at 15:44