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I'm so confused by the article in Marketwatch where the author says a profit is made when the stock price is out of money.

Per that article, I assume the trader bought options for a strike price of 2980. The index price dropped from 3120 to 3080, and the trader made profit on it. How is that possible?

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    The article states that the unidentified investor bought 23,000 put options with a strike price of 2980. When the market dipped on Wednesday they sold 8,000 lots to realise a profit of $13 million. Buying put options is profitable when the underlying asset goes down in price. Is this what is confusing you? – user41790 Dec 6 '19 at 1:36
  • My understanding is that to make a profit out of selling PUT is only when the price is in-the-money. In this case, for example if the price is 2700, the price is below the strike price and he can make a profit. What is confusing is the price was 3080 which is out-of-money. – wonderful world Dec 6 '19 at 1:47
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    The price of an option changes on a daily basis regardless of whether they are in-the-money or out-of-the-money. In this case, the market moved in his favour so investors were willing to pay a bit more for the option because the index was moving closer to the strike price. – user41790 Dec 6 '19 at 1:57
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Per that article, I assume the trader bought options for a strike price of 2980. The index price dropped from 3120 to 3080, and the trader made profit on it. How is that possible?

Per your comment:

My understanding is that to make a profit out of selling PUT is only when the price is in-the-money.

The problem is that you understanding is incorrect. Barring a sudden change in implied volatility, a put's price will increase in value immediately if the price of the underlying drops.

Here are today's closing quotes for the Jan 17th SPY puts.

Str ........ Bid . Ask . Last

300 SPY 2.81 2.82 2.80

301 SPY 2.98 2.99 3.04

302 SPY 3.17 3.19 3.19

303 SPY 3.38 3.40 3.45

Let's pretend that these are a snapshot from during the day. If you bought the $300 put for $2.82 and the SPY immediately dropped 3 points, it would be worth $3.38 (the same as the $303 quote) for a gain of $1.16

Your reference only making money if ITM refers to whether the put has any intrinsic value at expiration.

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