# Value of put if underlying stays below strike?

If ABC stock is trading at \$5 and I buy the Jan 15 strike put for \$8.25, what happens to the value of this put at expiration if ABC only meandered between \$5 to \$7 during the entire period?

• What is the strike of the put? \$8.25 is quite expensive for a put price, is this supposed to be the strike price? Commented Oct 19, 2014 at 20:17
• I think he means the \$15 strike. Commented Oct 19, 2014 at 20:49
• @JoeTaxpayer - no I think the expiry is Jan 2015. Anyway, the question as it is not very clear. Commented Oct 19, 2014 at 22:26
• not enough information without the strike price
– CQM
Commented Oct 19, 2014 at 22:28
• @victor - right. A \$15 strike means \$10 in the money for a \$5 stock. He needs to spell this out, the strike he bought. Commented Oct 19, 2014 at 23:20

The value at expiration does not depend on the price path for a plain vanilla European or American option. At expiration, the value would simply be:

max[K - S_T, 0],

where: K is the strike price,

and S_T is the underlying price at expiration.

\$15 - \$5 = \$10

How did you possibly buy a put for less than the intrinsic value of the option, at \$8.25

So we can infer that you would have had to get this put when the stock price was AT LEAST \$6.75, but given the 3 months of theta left, it was likely above \$7

The value of the put if the price of the underlying asset (the stock ABC) meandered between \$5 - \$7 would be somewhere between \$10 - \$8 at expiration.

So you don't really stand to lose much in this scenario, and can make a decent gain in this scenario. I mean decent if you were trading stocks and were trying to beat the S&P or keep up with Warren Buffett, but a pretty poor gain since you are trading options!

If the stock moves above \$7 this is where the put starts to substantially lose value.