26 lines
1.8 KiB
Plaintext
26 lines
1.8 KiB
Plaintext
CH.APTER 15
|
||
Put Option Basics
|
||
Much of the same terminology that is applied to call options also pertains to put
|
||
options. Underlying security, striking price, and expiration date are all terms that
|
||
have the same meaning for puts as they do for calls. The expiration dates of listed put
|
||
options agree with the expiration dates of the calls on the same underlying stock. In
|
||
addition, puts and calls have the same striking prices. This means that if there are
|
||
options at a certain strike, say on a particular underlying stock that has both listed
|
||
puts and calls, both calls at 50 and puts at 50 will be trading, regardless of the price
|
||
of the underlying stock. Note that it is no longer sufficient to describe an option as
|
||
an "XYZ July 50." It must also be stated whether the option is a put or a call, for an
|
||
XYZ July 50 call and an XYZ July 50 put are two different securities.
|
||
In many respects, the put option and its associated strategies will be very near
|
||
ly the opposite of corresponding call-oriented strategies. However, it is not correct to
|
||
say that the put is exactly the opposite of a call. In this introductory section on puts,
|
||
the characteristics of puts are described in an attempt to show how they are similar
|
||
to calls and how they are not.
|
||
PUT STRATEGIES
|
||
In the simplest terms, the outright buyer of a put is hoping for a stock price decline
|
||
in order for his put to become more valuable. If the stock were to decline well below
|
||
the striking price of the put option, the put holder could make a profit. The holder
|
||
of the put could buy stock in the open market and then exercise his put to sell that
|
||
stock for a profit at the striking price, which is higher.
|
||
Example: If XYZ stock is at 40, an XYZ July 50 put would be worth at least 10 points,
|
||
for the put grants the holder the right to sell XYZ at 50 - 10 points above its current
|
||
245 |