Put Option

A term all investors should know is put option. This is an agreement regarding the trade of stock at a certain price at a specific time. The trade of the stock is optional, decided by the person who owns the put option. The price that is agreed on for the trade is known as the strike price. Also, the expiration date of this option is known as the expiry date. Another term to know is premium, which refers to the price of the put option. To go through with the trade is exercising the option.

You will see that put options are sold in minimum lots of 100 shares. They are quoted as the price of one stock, so you will need to multiply the quote to get the full price. There are two different kinds of put options — American and European. American put options are only available in North America and can be exercised whenever the owner chooses on or before the expiry date. European put options are only available on European markets and they must be exercised on the precise expiry date.

If you are an investor looking for something with a lower level of risk, you can buy a put option on a stock that you own. This provides a type of insurance against loss if the stock price drops. This is done if you think the price may drop but aren’t yet ready to sell just in case it doesn’t. The investor who prefers more risk will buy put options on stocks they do not own. The seller of an option is called the writer of the option. If a trader believes a stock will rise in value they will be a seller of the put option, but if they think it will drop they will be a buyer. This allows them to exercise the option of buy low, sell high. This strategy is all about speculation.

Using a put option lets a speculator make a higher possible profit than if they simply bought shares of stock in a company. If you would like to learn more about put options, there are many resources available to you. There are investment newspapers like the Wall Street Journal, periodicals like Forbes and Money, plenty of books on investing and lots of websites. In addition, you can hire the services of an investment professional who can guide you. Simply tell them your budget and your financial goals, and they will help you develop a trading strategy to meet those goals. There are advisors who simply offer advice, brokers who execute trades and options and investment professionals who offer both services to their clients.

Comments are closed.