- Put Option Definition & Example | Investing Answers
- Option Delta. How to understand and apply it to your trading
- How to calculate an internal rate of return (IRR), and
- How to Calculate Total Cost: 13 Steps (with Pictures
The following strategies are similar to the long put in that they are also bearish strategies that have unlimited profit potential and limited risk.
Put Option Definition & Example | Investing Answers
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Option Delta. How to understand and apply it to your trading
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How to calculate an internal rate of return (IRR), and
If you were to exercise your put option after earnings, you invoke your right to sell 655 shares of XYZ stock at $95 each. Although you don't own any share of XYZ company at this time, you can easily go to the open market to buy 655 shares at only $85 a share and sell them immediately for $95 per share. This gives you a profit of $65 per share. Since each put option contract covers 655 shares, the total amount you will receive from the exercise is $6555. As you had paid $755 to purchase this put option, your net profit for the entire trade is $855.
How to Calculate Total Cost: 13 Steps (with Pictures
Since stock price in theory can reach zero at expiration date, the maximum profit possible when using the long put strategy is only limited to the striking price of the purchased put less the price paid for the option.
The underlier price at which break-even is achieved for the long put position can be calculated using the following formula.
Risk for implementing the long put strategy is limited to the price paid for the put option no matter how high the stock price is trading on expiration date.
The long put option strategy is a basic strategy in options trading where the investor buy put options with the belief that the price of the underlying security will go significantly below the striking price before the expiration date.
Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results.. [Read on.]
In-the-money puts are more expensive than out-of-the-money puts but the amount paid for the time value of the option is also lower.