What is the drop option?
A move option is a contract that gives the rights to the owner. But not committed to the sale of securities according to the specified amount at the specified price within the specified time frame The price that identifies the purchase options that the seller can sell is called the right price.
Put options are traded in various reference assets, including currencies, bonds, commodities, and indices. Placing can be compared to the call options. This allows the basic buyer the price specified in.
How can the option work?
The moving option will be more valuable when the share price is weak compared to the exercised price. On the other hand, the move options will be wasted when the basic stock increases. Since the placement options are mainly for short positions in the reference assets, they are used for the purpose of preventing risks or for speculation in the movement of downward price. The preventive set is used to ensure that the loss in the reference asset is not more than a certain amount of the exercise price.
In general, the value of the drop selector will be reduced according to the expiration period due to the decomposition of the time due to the probability of the lower stock, the specified price will be reduced. When the option is lost, the real value will be left. Which is equal to the difference between the exercised price is less than the reference stock price If the option is true, it will be in the form of money (ITM).
Out of the Money (OTM) and the option that puts money is not true because it is useless in using options. Investors can sell shares at a price that is higher than the current market price instead of using an apartment. Put money at unwanted prices.
The time or external values are displayed in the premium of the options. If the price exercised of the trading options is $ 20 and the current reference stock price is traded at $ 19, there will be a real value of 1 dollar in the options. But the trading option may be traded at $ 1.35 $ 0.35. Special is worth the time because the reference stock price can be changed before the option expires.
Where is the trade option?
Trading options include other types of options. Trading through some brokers is better than others for many reasons. Those who are interested in trading options can check the best broker list for the option of Investopedia. You can know that any broker is suitable for your investment needs.
Put Option training options
The seller called “writer” does not need to hold the option until the expiration and the buyer is not as well. Due to the movement of the stock price, reference special options will change according to the latest price movements. Optional buyers can sell options at any time to reduce losses and compensation. Part of the premium (if OTM) or gain lock (if ITM)
Similarly, the author can do the same thing. If the reference price is higher than the exercise price, the user may not do anything because the option may expire. And can maintain all premium levels But if the reference price is close or lower than the exercise price to avoid the big loss, the writer option may just buy such options back so that they leave the position. Profit or loss is the difference between the premium collected and premium paid to leave the position.
Sample of the real world of placing options
Suppose the investor is the owner of one choice in SPDR S & P 500 ETF (SPY) – trading at $ 277.00 at present, with the exercise price equal to 260 dollars to expire in one month. For this option, they pay a premium $ 0.72 or $ 72 ($ 0.72 x 100 shares).
Investors have 100 shares of XYZ to sell shares for $ 260 until the expiration date in one month.
If the SPY shares fell to $ 250 and investors used investor options, they could buy 100 shares for $ 250 in the market and sell shares to writers of options for $ 260, so investors will make. $ 1,000 (100 x ($ 260 – $ 250)) in the placement options is less than a $ 72 cost that they pay for the net profit option is $ 1,000 – $ 72 = $ 928, deducting any commission. The maximum loss of trading is limited to the premium paid or $ 72. The highest profit will be received.
In contrast to the long-handing options, short or written placement options require investors to spend time delivering or buy shares of reference stocks.
Suppose investors are still bullish with Spy, which currently trades at $ 277, and do not believe that it will be reduced below $ 260 in the next two months. Investors can collect premiums of $ 0.72 (x 100 shares) by writing one option, putting the spy with a closing price at $ 260.
The author option will gather all $ 72 ($ 0.72 x 100). If the price is still higher than the price hit $ 260, the investor will collect premiums because the option will expire from money and be worthless. This is the highest profit of trading: $ 72 or collecting insurance.
On the other hand, if the Spy moves below $ 260, investors are going to buy 100 shares at $ 260, although the stock will fall up to $ 250 or $ 200 or lower, no matter how far the stock will fall. Put will be responsible for the purchase of shares at $ 260, which means that they have to face the theoretical risk of $ 260 per share or $ 26,000 per contract ($ 260 x 100 shares) if the share of reference is lower than zero.