Only buyers of puts have the option to exercise, and that is the exercise to sell at the strike price. If market is lower than the strike price, the buyer already made the spread and just have to sell the contract. They don't have to exercise (sell the physical shares) when they made money, it's just a hassle. Someone exercising would have to buy the shares on the market in order to resell it at the strike price which is a waste of time when you could just sell the contract which is priced at least by the spread of market and strike and make the same profit. Get it? No one exercises a put.
A Put is a contract to sell shares, not buy. This person is in a contract to sell shares at $2 because they think the market price is going to be less than $1.80 on November 16th. Why are you saying they are accumulating a block at 1.80? That is not what a put contract is.
Um...I just showed you how it works, and I assumed the worse: i.e. assuming a .25 loss on all shares. In reality, this investor lost less because they sold much in between 2.30 and 2.05....they didn't sell all of it at 2.05. Also, I assumed the worse in that they sold an amount of shares equal to the Puts gain, when in reality they didn't need to and can realize a gain in the price. I assumed the worse to make the math easy for you.
What you completely missed is the fact that they can re-enter at a much lower price without any cost, which can only lead to greater gains once PATH goes up. It doesn't matter how much PATH goes up, the person who entered at $2.05 will have greater gains than the person who entered at a higher price.....it is simple math. This investor will ultimately cover their losses at a share price 25 cents lower than whatever their original entry average was by doing the above, and they are achieving this at little cost and possibly a gain.
Like it or not, this is a strategy, it's been around for a while, it makes people money, and I didn't invent it. Just wanted to share my experience to try to make sense of the past week in PATH's share price for those on this board who are scratching their heads.
OK. this is how you make money on a Puts trade like this. Let's say an investor who owns PATH wants to begin at an entry point much lower than market. You purchase the 2,500 PUTS at .20, sell a ton of shares into the downward momentum (and there was downward momentum before this trade), sell the puts for a profit, then purchase shares of PATH on sale.
These Puts are now at .30, which is a 50% profit, or $25,000. Between Oct 9 and today, PATH lost .25 cents, so this investor could have potentially sold 100,000 shares between Oct 10 and today (loss of $25,000), close the position on the puts, and still break even. Now this investor can come back into the market with an entry point at close to $2 and look like a star when PATH goes back up. This happened over the summer to SID; large order on the put side when the stock was already cheap, stock took a beating for a month, then it doubled. I'm sure the person who bought the puts was behind the beating, and I am positive they made a ton of cash.