Please correct my understanding under below situation and answer some question in below situation. Text that inside " symbol is from the book. (SET50 index option is European option) You can skip answering the question that is not bold letter (but if you answer, I will be appreciated so much!) "Scenario 2: Current SET50 index is 875 points.” “Mr. A Anticipate SET50 will significantly drop (for example 800) by the expiration. So, MR. A open 1 long position on put option on SET50 at strike price 875 points and pay Premium 40.0 points, Mr. B short this put. Now, Mr. A & Mr. B is counterparty." “Later SET50 index is 850, Mr. A make decision to close out the option before expiration date by short close this option. Suppose the premium is then 38 points. Then, Mr. A earns the premium. " I don’t get why premium is drop from 40 points to 38 points, it should be increase because it was in the money position, isn’t it? If Mr. A will earns the premium from short close this option, How much Premium that Mr. A received from closing this option? I don’t understand this concept please explain more (some examples preferably) and I also doubt when Mr. A decide to short close this option before expiration whether this long put option at 40 points will be closed by clearing house or other people, for example Mr. C can buy this option from Mr. A & inherit this long put option and this option valid until expiration date, In case that the option have to be closed before expiration because Mr. A short close this option what will happen to Mr.B. & I'm also wonder that Can Mr.B close his short put option by himself or not. If he can, what will happen to Mr A & Mr. B?
Please correct my understanding under below situation and answer some question in below situation. Text that inside " symbol is from the book. (SET50 index option is European option)
You can skip answering the question that is not bold letter (but if you answer, I will be appreciated so much!)
"Scenario 2: Current SET50 index is 875 points.”
“Mr. A Anticipate SET50 will significantly drop (for example 800) by the expiration. So, MR. A open 1 long position on put option on SET50 at strike price 875 points and pay Premium 40.0 points, Mr. B short this put. Now, Mr. A & Mr. B is counterparty."
“Later SET50 index is 850, Mr. A make decision to close out the option before expiration date by short close this option. Suppose the premium is then 38 points. Then, Mr. A earns the premium. "
I don’t get why premium is drop from 40 points to 38 points, it should be increase because it was in the money position, isn’t it? If Mr. A will earns the premium from short close this option, How much Premium that Mr. A received from closing this option? I don’t understand this concept please explain more (some examples preferably) and I also doubt when Mr. A decide to short close this option before expiration whether this long put option at 40 points will be closed by clearing house or other people, for example Mr. C can buy this option from Mr. A & inherit this long put option and this option valid until expiration date,
In case that the option have to be closed before expiration because Mr. A short close this option what will happen to Mr.B. & I'm also wonder that Can Mr.B close his short put option by himself or not. If he can, what will happen to Mr A & Mr. B?
Thank you so much for your answering
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