2. Put Options Explained

Join us in the discussion on InformedTrades: http://www.informedtrades.com/1239545-using-put-option-insurance-beginning-options-2-a.html Practice trading options with TradeMonster (free demo account available): http://bit.ly/trademonster Put options are basically the right (but not the obligation) to sell an asset. If an investor owns an asset, they can thus buy put options to hedge against short-term downwards movements. Here is an example from the video: 1. Trader is long 100 shares of SLV, which he/she has bought at $18.32 2. Trader buys a put option on those shares, with a strike price of $18. That means the trader has the right -- but not the obligation -- to sell those shares at a price of $18. 3. Each option has an expiration date. The expiration date on this option is 1 month away. So, the trader has the right, but not the obligation, to sell 100 shares of SLV at $18 per share within one month's time (before the option expires. 4. For this right, the trader pays $0.33 per share, plus commission. So, it costs the trader $33 + commission for this right. From this example we can see the components of a put option: 1. Strike price 2. Expiration date 3. Commission 4. Option price Options with expiration dates that are further away are generally more expensive. The higher the strike price, the more expensive the put option is. In the aforementioned SLV example, a put option with a strike price of $20 will generally be considerably more expensive than a put option with a price of $15. Part of the science of trading put options is evaluating the trade off between buying an expensive put with a higher strike price versus a less expensive put with a lower strike price. The chart below illustrates how buying puts can play a role as an insurance policy, as Tek referenced in the video.

Comments

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2. Question about PUT LEAPS DEC 21st 2018.
   Anyone explain the "what if":
   
   I buy SPY PUT LEAP Dec 21st 2018 Strike $320 for $0.20cents
   
   AND...price never get's higher than $229.00 and SPY market "corrects" down to $140.
   
   What is my risk?
   
   What is my reward?
   
   AND, since the SPY never reached the $320 strike, does that have any negative effect?
   
   What if the price rises above the $320 strike, and continues to close on Dec21st 2018 above $320 strike? Lets say $350?
   
   Thanks.
3. Very understandable! Finally I've got it...
4. Do you have any videos for call options? I found this video very helpful.
5. Arent the option in white calls and the options in blue puts?