Put Option Wiki

Put options explained

Buying a Put Option

Buy when you think a stock will be going down

When you buy a put option, you are entering into a contract with someone who wants to buy your stocks at a future time. When that time comes you can choose to sell the stocks or chose to keep them.

Here’s the point.

If the stock goes down like you guessed it would, your contract with the person who agreed to buy your stocks, allows you to get rid of those stocks. The other party has to buy them.

People who buy put options don’t usually even own the stocks they are paying a fee for the right to sell.

If the stock price goes up, you just don’t have to sell anything, because you bought the option to sell or not sell.

If it goes down as planned, you buy the shares in the open market for the new low price and then deliver “put out” those shares to the party that agreed to buy them for the agreed upon “strike price”

Lets assume the price of the stock went down and you sond the stcks at the strike price.

put option wiki payoff diagram

Selling a Put Option.

Only if you are sure a stock is going up.

In this case you a betting a stock is going up. If it doesn’t, you have agreed to buy a certain stock for an agreed amount and will end up paying too much for a stock.

Hopefully the stock only went down by the amount of the fee you collected so you can break even.

This is the least recommended options trading strategies since most are losers and you will need to buffet put options contract’s risk with an additional call option hedge.

Put option wiki

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