poor market for long term options, page-4

i may be confused but you sound confused

generally, one writes, i.e., sells out of the money put options to a speculator

you sell it, i.e., pocket the proceeds immediately, because you believe the options will never be in the money

where as the buyer may buy them for say 1 cent each because the potential loss is not large for him

but if the market crashes, like in the GFC, these way out of the money put options can suddenly be in the money

when you write/sell a put option, it means you have to buy another person's shares if the option you sell to them comes in the money

example:

1. BHP is now $35

2. you sell 10,000 put options for $1 each giving the buyer the right to sell you his 10,000 BHP shares for $20 each

3. as the current market price is $35, it is unlikely the buyer of the option will ever want to sell you his shares for $20 each given he can sell on market for $35

4. but if another GFC comes & BHP falls to $15, then suddenly the options are in the money and you must pay, say, $5 each or $50,000 to close out the option you wrote/sold, otherwise you have to buy his 10,000 shares for $200,000

5. there is a company called Optionetics. they were employing this strategy & selling it to newbies prior to GFC, writing options on way out of the money long term options on the US markets, including to Australian members. when the GFC came, they all got burned, big time

good luck