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Practical Options Trading Strategies

Views 7874Aug 9, 2023

Buy a put

What are the basics?

Like stocks, options are financial securities that can be bought and sold. There are two types of options: calls and puts.

Buy a put -1

Buy a put means you need to pay an amount (the premium) for a contract that gives you the right, not the obligation, to sell an asset (the underlying asset) at an agreed price (the strike price) on or before a specified date (the expiration date).

Buy a put -2

For example, you may purchase a $1,000 TUTU 202X-XX-XX put at $100 premium. In this case, you have the right to sell 100 shares of TUTU at $1,000 per share on or before 202X-XX-XX.

Why trade it ?

Put options' prices is likely to rise if its underlying stock falls

Generally, a put option and its underlying stock move in opposite directions. So if you're bearish on the stock, you may consider buying its puts.

Buy a put -3

Speculation

Options can provide leverage. This means if the underlying stock moves downward, the rise in its put price could be bigger; similarly, if the underlying stock goes up, the fall in its call price could be greater, too. So puts can be used for speculation.

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Limited loss

The maximum potential loss for buying a put is the premium paid, while the maximum profit occurs when the stock price falls to 0. The max gain is the strike price * the number of shares covered - the cost of buying the put.

Buy a put -5

Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation or endorsement of any specific investment or investment strategy. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. It is important that investors read  Characteristics and Risks of Standardized Options before engaging in any options trading strategies.

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