A put option is a security that you buy when you think the price of a stock or index is going to go down. More specifically, a put option is the right to SELL shares of a stock or an index at a certain price by a certain date. That "certain price" is pt as the strike price, and that "certain date" is known as the expiry or expiration date. A put option, like a call optionis defined by the following 4 characteristics: It is called an "put" because it gives you the right to "put", or sell, the stock or index to someone else.
A put option differs from a call option in that a call is the right to buy the stock and the put is the right to sell the stock. So, again, what is a put? Since put options are the right to sell, owning a put option allows you to lock in a minimum price for selling a stock. It is a "minimum selling price" because if the market price is higher than your strike price, then you would example put option stock n go sell the stock at the higher market price and not exercise it.
Trading Tip: Look at the graph at the lower right and note the shape of the payoff curve for owning a put option. The main disadvantage that puts have compared to calls is that the profit potential is limited with puts! So the most that a put option can ever be in the money is the value of the strike exakple. This contrasts to calls, where the stock price theoretically can go to rxample so the profit potential from a call option is unlimited.
This is one reason that puts have less appeal and less volume than calls; the other reason that puts typically have less volume than calls is that the natural trend of the market is up so most people are expecting stocks to go up so they buy calls. If you think a stock or index price is going to fxample down, then there are 3 ways you can profit from a falling stock price: The first example is if you believe that a stock price is going to fall in the near future. Maybe the stock has gone up too much too quickly.
Or suppose you know that a stock is about to release bad earnings or report some other bad news. If this exwmple the case, then you best way to make money in the short term is to just buy a put option on the stock. The strike price and the expiration month that you choose depends on how far you think AAPL will drop and when you think it will drop.
Also suppose you found out from a friend that knows for certain that the sales are down and profits exampld down. You would buy the nearest expiration month because that would be the cheapest, and you would buy the nearest strike price under the current market price because that is where you tend to get the greatest percentage return. Here's another example of why a lot of people trade put options. In this instance you still own the stock and have taken a similar loss on owning the stock, but that loss on the stock is offset for the profit you made on the put option.
Put Option Trading Tip: Why buy a put option if you own the stock and you think the price will decline? Many people in this instance would just sell the stock, let it drop, and then buy the stock back at a lower price. The problem with this strategy is that you would have a huge capital gain on the sale of the stock and you would have to pay taxes on that out. If fxample just buy a put, that is a totally different transaction as far as the IRS is m so you would just have to deal with the tax consequences of that put option trade.
So if you own stock at a very cheap cost basis and you think a stock price will decline for the short term, but you still want to hold onto it for the long term, then buy a put option! The taxes on the example put option stock n go trade will be less than the taxes on the stock if you had purchased the stock at a very low price. That is why it is called an option--it is a choice and not an obligation. Put Option Trading Tip: In the U. These weekly options usually become available at the end of the preceding week.
If you are just getting started trading options, then stay away from the eexample as they are very volatile. Here are the top 10 option concepts you should understand before making your first real trade: Options trade on the Chicago Board of Options Exchange and the. What are Stock Options? Call and Put Options.
What are Call Options? Making Money with Call Options. In The Money Call. What are Put Options? Making Money with Put Options. In The Money Put Option. How To Buy A Call. Writing a Covered Call. Deep In The Money. Out Of The Money. What Are Put Options. What is a Stock Option? Call and Put Option. What is a Call Option? Make Money with Call Options. In The Money Calls. What is a Put Option? Make Money with Put Options. In The Money Put Options.
How To Buy Calls. Using A Stop Order. Selling A Naked Call. Selling A Naked Put. Top 10 Option Trading Tips. Put Option Payoff Diagram. Next: How To Make Money With Options. Here are the top 10 option concepts you should understand before making your first real trade:. What is a Call? What is example put option stock n go Put? Best Discount Option Brokers. Buying A Call Option. Making Money with Options.
Options Resources and Links. Options trade on the Chicago Board of Options Exchange and the.
Stock Options: Difference in Buying and Selling a Call or a Put
What Are Put Options. Table of A put option is a security that you buy when you think the price of a stock or index is going to go Put Option Example #You. Learn basic to advanced options trading strategies with free courses from OIC. On-Demand Videos · Options Talk Podcasts · Live Webinars · Online Courses. Active Traders Get $ Trades +₵ Per Options Contract. Sign Up. Educational Resources · Top Rated Mobile App · Low Commisions.