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).