The writer who collects the premium would want it to increase resulting in a capital gain, whereas at a lower premium if sold they would lose the difference. Right?
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Hi @Joshua_O_Connell, thanks for posting.
In this question, the investor sold a put. It doesn’t say the amount of the premium, but let’s assume they sold it for $10.
When they trade the option later, they’ll need to pay the new premium to repurchase it - so they want the new premium to be as low as possible:
- If the new premium decreased to $7, they would have a capital gain: $10 - $7 = $3
- If the new premium increased to $13, they would have a capital loss: $10 - $13 = -$3
Got it. Thanks!!!
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