A:

Once a put option contract has been exercised, that contract does not exist anymore. A put option grants you the right to sell a stock at a specified price at a specific time. The holder of a put option expects the price of the underlying stock to decline. When the price of that stock goes down, the holder of the put option has two choices: a) sell the put option for profit, or b) exercise the option. You cannot exercise the option and then sell it at the same time; it has to be one or the other.

When a put option is in-the-money, depending on the rules of the brokerage firm you are using, instructions are submitted to your broker or it is automatically exercised. If the option is exercised, the holder buys the stock at its current price and sells the same stock at its exercise price. For example, if the put option contract for stock A specifies the exercise price at $10 at a specific date, and the actual price on that date is $8, the option holder exercises the contract by buying stock at $8 and selling it for $10 to get a $2 profit. When that option contract is exercised, it no longer exists.

To learn more, see our Options Basics Tutorial.

This question was answered by Chizoba Morah.

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