Buying a put option: Assume International Business Machines Corporation (NYSE: IBM) stock is trading at $140. An investor buys a put option for IBM because he expects that stock to decrease in value. The strike price of the option is $137 and the expiration date is in three weeks. Su...
Once puts have been sold to a buyer, the seller has the obligation to buy the underlying stock or asset at the strike price if the option is exercised. The stock price must remain the same or increase above the strike price for the put seller to make a profit. If the price of the u...
Selling put options at a strike price that is below the current market value of the shares is a moderately more conservative strategy than buying shares of stock normally. Your downside risk is moderately reduced for two reasons: Your committed buy price is below the current market price ...
The biggest advantage of buying a call option is that it magnifies the gains in a stock’s price. For a relatively small upfront cost, you can enjoy a stock’s gains above the strike price until the option expires. So if you’re buying a call, you usually expect the stock to rise ...
The short put is a neutral-to-bullish options trade, since the speculator expects the stock to remain at or above the strike price through expiration.
Answer to: A call option with a strike price of $54 on a stock selling at $61 costs $8.6. What are the call option's intrinsic and time values? By...
Selling puts of Twitter can help investors generate additional income as the social media company faces headwinds amid missing estimates in the fourth quarter and downgrades from Wall Street.
The second critical rule involves pricing. Calculate your "net price"—that's the strike price minus the premium you collect—before entering any trade. For example, if you sell a $150 put on Advanced Micro Devices Inc (AMD) and collect $3 in premium, your net purchase price would be $...
The option must be exercised within the time frame specified by the put contract. If the stock declines below the put strike price, the put's value will go up. However, if the stock remains above the strike price, the put will expire worthless, and the trader won't need to buy the a...
Example of the Put Option Alternative to Shorting Say Company X was trading at about $200 on March 4. A put option with a strike price of $200 that expired March 18 costs about $13 per share (the option premium plus commissions). If the price of Company X rose above $200, the inves...