When you sell a put option on a stock, you’re selling someone the right, but not the obligation, to make you buy 100 shares of a company at a certain price (called the “strike price”) before a certain date (called the “expiration date”) from them. They’re paying you for this...
if IBM never trades below $100 before your December option expires, you won't have to buy the stock and can simply keep the premium you received from the sale of the option. In other words,selling a naked putis the same thing as betting...
and Cliffs Natural Resources in the aforementioned article. Again, the key to successfully executing this strategy over the longer term is to increase the odds that put options you sell will expire worthless. By targeting strike prices below a stock's support levels, you can greatly increase the...
Selling a naked put option gives one the right to purchase the underlying stock at a set price on or before a set date. This chapter explains rules for selling naked puts, examining the role of theta, and closing the trade to mitigate risk. Profits should only be accounted for when the ...
A put option is an option contract that gives the buyer the right, but not the obligation, to sell the underlying security at a specified price (also known as strike price) before or at a predetermined expiration date.
Volatility is a factor in option pricing, and low volatility can push down the premiums that put sellers can collect. How do investors use put selling? Some investors sell puts to generate income from a stock that they think will rise in the future. This can be an especially effective ...
Let’s look at examples of buying and selling put options. 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 o...
Once the option is sold, you've already attained your maximum potential profit in a short put strategy. Whether the stock settles squarely at $25 or rallies up to $50 upon expiration, that $15 you collected for the sale of the option is the most you stand to make. Ideally, the stock...
would work: You sell one put option contract with a $95 strike price expiring in one month, collecting a $3 premium per share. Since each contract represents 100 shares, you receive $300 upfront ($3 × 100 shares). This premium is yours to keep, no matter what happens to the stock....
Puts are particularly well suited for hedging the risk of declines in a portfolio or stock since the worst that can happen is that the putpremium—the price paid for the option—is lost. A loss would come if the anticipated decline in the underlying asset price didn't materialize. However,...