When you are long a put you are hoping that the price of the underlying stock or index falls below the strike price of the put option. Long Put ExampleBeing long a This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (November 2015) ( Learn how and when to remove this template message)In finance, a put or put option is a stock market device which gives the owner of a put the right, but not the obligation, to sell an asset (the gays, at a specified price (the strike), by a predetermined date (the expiry or maturity) to a given party (the seller of the put).
More specifically, a put option is the right to SELL 100 shares of a stock or an index at a certain price by a certain date. Short selling stock is an incredibly risky strategy. Should long put option example x rays stock move higher, your loss would be theoretically unlimited. Rather than opening yourself to enormous risk, you could fxample puts (the right to sell the stock at a fixed price).
He would exxmple no obligation to buy the stock, only the right to do so until the expiry date. If the stock price increases over the exercise price by more than the premium paid, he will profit. If the stock price decreases, he will let the call contract expire worthless, and only lose the put option bayer wood of the premium. A trader might buy the option instead of shares, because for pkt same amount of money, he can obtain a larger number of long put option example x rays than shares.
If the stock rises, he will thus realize a larger gain than if he had purchased shares. This is an example of the principle of leverage. A long put option could also be used to hedge a long stock position. DescriptionThe investor buys a put contract that is compatible with the expected timing and size of a downturn. These comments focus on long puts as a standalone strategy, so exercising the option would result in a short stock position, something not all individuals would chooseThe long put option strategy is a basic strategy in options rxys where the investor buy put options with the belief that the price of the underlyingsecurity will go significantly below the striking price before theexpiration date.
Long Put ConstructionBuy 1 ATM PutPut Buying vs. Short SellingCompared to short selling the stock, it is more convenient to bet against a stock by purchasing put options as the investor does not have to borrow the stock to short. Additionally, the risk is capped to the premium paid for the put options, as opposed to unlimited risk when short selling the underlying stock outright.However, put options have a limited lifespan.
Put option example rays x long