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Politics : Ask Michael Burke
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To: Bill/WA who wrote (44142)1/21/1999 8:37:00 AM
From: Tommaso  Read Replies (1) of 132070
 
For the put to be in the money, the stock would have to be at 8 1/2, or 50% lower than it is right now. When you bought it, it was so far out of the money that the price was very low even though the horizon was a little longer. If the stock never drops below the strike price, the put is never really worth anything except for what someone will pay as a hedge or as a speculation. In the last six months of its life, the risk premium decays rapidly if the strike price is still well below the current quote. If the stock continues down rapidly, and soon, the put could double, but the price would have to be down to 7 by June in order to guarantee a double before expiration.

At least that is the way I understand it.
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