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I'm just starting to educate myself on trading and financial instruments and I have what to me seems like a somewhat stupid question but I'd like to pose it nontheless.

If I have an option to sell stock A at 50 dollars, and stock A plummets to 2 dollars during the duration of my contract, who would choose to buy my option? In my mind it represents a $48 loss, but I'm well aware that maybe I'm missing something. I appreciate the pacience and acknowledge that I'm an amateur when it comes to financial instruments.

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  • $\begingroup$ Hi : If you bought the option and paid some price X for it, then, assuming it never goes back into the money over the rest of its life ( i.e: expires out of the money ) then all you lose is X. You don't own the shares of the stock so you don't lose 48. By buying the option, you own the right to buy some amount of shares ( specified in contract) at a price (the strilke) at a future expiration time t. So, you only lose what you paid for the option. I remember getting the basics of options from the Cox and Rubenstein text, I recommend it but there could be other good ones now also. $\endgroup$ – mark leeds Jul 16 '19 at 1:58
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You have what is known as a put option (the right to sell the stock) . If the stock has fallen precipitously to 2 dollars, then the the option to sell at 50 is worth about 48 dollars. If you are asking who will buy it , then just about anyone will pay you 47 dollars for it. Hardly anyone will pay you 49 dollars. So the answer depends on what price you are offering it at.

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