Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
What exactly do you mean? Are you referring to call and put options? If so, each options contract represents 100 shares for U.S. stocks. Most options contracts are never exercised and expire worthless. Once this happens it resolves the problem you described. The process repeats itself with each options expiry. If every options contract holder suddenly exercised it would force the market makers to buy (or sell) massive quantities of stock that could cause a rare event known as a Gamma Squeeze. This happened with Gamestop a couple of years ago. I believe that the stock redemptions from options exceeded the actual total float of stock shares available. I do not recall how this was resolved but it was limited to Gamestop and not a threat to the overall system.
Sunbiz1 can you follow up to clarify your question?
Sorry, totally forgot about this thread.
If takes an ever increasing amount of options to leverage the shares, how can it continue?.
This seems akin to printing endless fiat currency, eventually becoming devalued.
Sorry, totally forgot about this thread.
If takes an ever increasing amount of options to leverage the shares, how can it continue?.
This seems akin to printing endless fiat currency, eventually becoming devalued.
One put option doesn't really protect 100 shares since the put option has intrinsic and time value and as the stock might drift lower it's not one to one. Maybe two puts protect. Post a sample stock and strike and can give you a better idea on protective puts.
Sorry, totally forgot about this thread.
If takes an ever increasing amount of options to leverage the shares, how can it continue?.
This seems akin to printing endless fiat currency, eventually becoming devalued.
Still not very clear what you are asking. Options are derivatives and do NOT equate to the number of shares outstanding in the equity they represent. An options transaction is simple; Someone wants to buy a call and that person is accommodated by a market maker or an individual willing to sell it to collect a premium.
Options do not create any more shares outstanding so they do not devalue anything other than the account of the individual that is on the losing side of the trade.
They are basically a derivative mostly concerned with price movement of the underlying.
But if exercised into the underlying then the underlying must be acquired, or previously acquired, on the existing equity markets.
Options are created on demand but the equity markets only have existing amounts of stock.
Most options expire or are offset and closed-out before expiration.
Options have an open-interest that constantly changes but certainly goes to zero at expiration
.
Last edited by T Block; 02-17-2023 at 05:23 PM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
