Can someone explaine "Put Options" trading?

Question

Can someone explaine "Put Options" trading? Is there any risk involved in this?

Answer 1

Put options are usually used to hedge against risk, particularly if you are in a long position. A put gives you the right to sell a stock at the strike price of that put.  For example you have 100 shares of IBM which trade at $120 a share.  You want to limit your downside risk so you can buy put options with a strike price of say $110. Now in our example IBM comes out with very bad news and the stock price drops to $100  a share.  Well you lost $20 a share on each of you hundred shares.  Thats a 2000 dollar loss, but since you have your put options you can sell your shares at 110 dollars meaning you really only lost 1000 dollars.  Actually you would have lost more than $1000 because to buy those puts you need to pay a premium, but its still better than losing $2000.

Answer 2

You buy a put if you want to bet that a stock

   will go down n 3 mo,s

    90% of optios are losers

      A good way to go broke ?

Answer 3

The answer by "Independant" gave you one way to use one type of put option.

The type of put option in his example were put options on an equity (stock) but there are put options on other underlying assets such as stock indexes and futures.

The particular way he used the option was what is called a "protective put" or sometimes a "married put" because it was used to protect the value of the underlying asset, in this case 100 shares of IBM.

<<<Can someone explaine "Put Options" trading?>>>

A proper explanation would take several chapters of a book, so I wil only skim the surface.

A put option gives the holder the right, but not the obligation, to sell an underlying asset at a specific price. (That price is called the "strike price", "striking price" or sometimes the "exercise price".) If the option is "American-style" the asset can be sold any time prior to the expiration of the option. If the option is "European-style" the asset can only be sold at expiration.

Option traders try to profit by using any of dozens of different strategies, usually based on a prediction of changes expected in the price of the underlying asset and changes in the implied volatility of the option istself.

<<<Is there any risk involved in this?>>>

There are multiple risks involved in put option trading. If you trade a stock all of your risk comes from changes in the price of the stock, what option traders call "delta" risk. If you trade options you should also consider "gamma" risk (changes to the delta of the options), "vega" risk (changes in the value of the option due to changes in implied volatility), "theta" risk (changes in the value of the option due to the passage of time), and "rho" risk (changes in the value of the option due to changes in the risk free interest rate).

A lot of people recommend "delta neutral" trading for options. Because the delta risk is, at least temporarily, eliminated in delta neutral trading some people (usually scum-of-the-earth salesmen) incorrectly call such trading risk free.

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If you want to learn more about options I recommend you utilize the free education material at

http://www.optionseducation.org/

and/or

http://www.cboe.com/LearnCenter/default....

since it is free, accurate and spam-free, unlike much of the other education material on the web. These sites do not, IMHO, teach you enough to trade successfully, but they teach you enough that you can reasonable evaluate books for more in-depth information.

If you want some example of put option trades I have made, see

http://messages.yahoo.com/Business_%26_F...

http://messages.yahoo.com/Business_%26_F...