262 Part Ill: Put Option Strategies 
As was stated earlier, it is necessary to have a computer to make an accurate analysis 
of all listed options. The average customer is forced to obtain such data from a bro­
kerage firm or data service. He should be sure that the list he is using conforms to 
the above-mentioned criteria. If the data service is ranking option purchases by how 
well the puts would do if each underlying stock fell by a fixed percentage (such as 5% 
or 10%), the list should be rejected because it is not incorporating the volatility of the 
underlying stock into its analysis. Also, if the list is based on holding the put purchase 
until expiration, the list should be rejected as well, because this is not a realistic 
assumption. There are enough reliable and sophisticated data services that one 
should not have to work with inferior analyses in today's option market. 
For those readers who are more mathematically advanced and have the com­
puter capability to construct their own analyses, the details of implementing an analy­
sis similar to the one described above are presented in Chapter 28, Mathematical 
Applications. An application of put purchases, combined with fixed-income securi­
ties, is described in Chapter 26, Buying Options and Treasury Bills. 
FOLLOW-UP ACTION 
The put buyer can take advantage of strategies that are very similar to those the call 
buyer uses for follow-up action, either to lock in profits or to attempt to improve a 
losing situation. Before discussing these specific strategies, it should be stated again 
that it is rarely to the option buyer's benefit to exercise the option in order to liqui­
date. This precludes, of course, those situations in which the call buyer actually wants 
to own the stock or the put buyer actually wants to sell the stock. If, however, the 
option holder is merely looking to liquidate his position, the cost of stock commis­
sions makes exercising a prohibitive move. This is true even ifhe has to accept a price 
that is a slight discount from parity when he sells his option. 
LOCKING IN PROFITS 
The reader may recall that there were four strategies (perhaps "tactics" is a better 
word) for the call buyer with an unrealized profit. These same four tactics can be 
used with only slight variations by the put option buyer. Additionally, a fifth strategy 
can be employed when a stock has both listed puts and calls. 
After an underlying stock has moved down and the put buyer has a relatively 
substantial unrealized gain, he might consider taking one of the following actions: 
1. Sell the put and liquidate the position for a profit. 
2. Do nothing and continue to hold the put.