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