19 lines
1.2 KiB
Plaintext
19 lines
1.2 KiB
Plaintext
Buy Put
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Buying a put gives the holder the right to sell stock at the strike price. Of
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course, puts can be a part of a host of different spreads, but this chapter
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discusses the two most basic and common put-buying strategies: the long
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put and the protective put. The long put is a way to speculate on a bearish
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move in the underlying security, and the protective put is a way to protect a
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long position in the underlying security.
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Consider a long put example:
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Buy 1 SPY May 139 put at 2.30
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In this example, the Spiders have had a good run up to $140.35. Trader
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Isabel is looking for a 10 percent correction in SPY between now and the
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end of May, about three months away. She buys 1 SPY May 139 put at 2.30.
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This put gives her the right to sell 100 shares of SPY at $139 per share.
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Exhibit 1.6 shows Isabel’s P&(L) if the put is held until expiration.
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EXHIBIT 1.6 SPY long put.
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If SPY is above the strike price of 139 at expiration, the put will expire
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and the entire premium of 2.30 will be lost. If SPY is below the strike price
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at expiration, the put will have value. It can be exercised, creating a short
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position in the Spiders at an effective price of $136.70 per share. This price |