Buying Puts Options Stocks

Question

Hello, I am new to Options and I recently bought 8 contracts for $0.59 and strike price of $5. I only have $12 available left, so does that mean that I need to exercise or not? I thought that if I hold the 8 contracts under $5 Strike hoping it stays under for NOK Stock and it expires from spending $450, It says I get $3500 maximum profit/$450 Maximum Loss. Do I win the 800 shares for guessing right after expiration ends to make $3500 easy from spending only $450?

Answer 1

Short answer: no, you don't need to exercise, and you can't with $12. You also won't automatically make $3,500. The $3,500 only happens if NOK falls all the way to $0.

You bought PUTs

A "$3,500 max profit / $450 max loss" display only fits long puts.

1. 8 contracts × 100 shares = control of 800 shares
2. Cost: $0.59 × 800 = $472 (about the $450 shown)
3. A put gives you the right to sell 800 NOK shares at $5. It does not give you shares.

Where the numbers come from

1. Max loss, $472: NOK is at or above $5 at expiration. The puts expire worthless and you lose the full premium.
2. Max profit, about $3,528: NOK goes to $0, so (5 − 0.59) × 800. That basically never happens to a real company.
3. Break-even: $4.41 (5 − 0.59). NOK has to be below $4.41 at expiration just to get your money back.