The option itself is a security in its own right, as it can be purchased and sold. Options are financial contracts to buy or sell a particular stock at a set price for a specified period. You can also trade put options, which give the owner the right to sell stock. How you use a put option depends on what you want to accomplish. Long PutIf you expect the market price of how does a short put option workbenches particular stock to decline in the near term, you might employ a long put option, which involves buying a put.
Owning the put gives you the right, but not the obligation, to sell 100 shares of the underlying stock for a set price, called the strike price, until theHow a Put Option Trade WorksPut options are bets that the price of the underlying asset is going to fall. DescriptionThe idea is to sell the stock short and sell a deep-in-the-money put that is trading for close to its intrinsic value.
Assignment on the put option, when and if it occurs, will cause complete liquidation of the position. The profit would then be the interest earned on what is essentially a zero outlay. The danger is that the stock rallies aboveBrowser Upgrade Recommended: Your version of Internet Explorer is no longer supported and may not display all the features of our website.
For the best experience, please update your browser with the latest version. Thank you for visiting Scottrade.com. We have implemented a Skip to Main Content link and improved the heading structure of our site to aid in navigation with a screen reader. We are consistently making improvements to the accessibility of our site. Short Put StrategiesWhen you short a put option, you receive an upfront premium from the buyer.
You also could be obligated to buy shares of the underlying stock. Plus you wShort CallComponentsA short call is simply the sale of one call option. CharacteristicsWhen to use: When you are bearish on market direction and also bearish on market volatility.A short is also known as a Naked Call. Naked calls are considered very risky positions because your risk is unlimited.