How do you cash in on a "put" call when trading stocks?

Question

A stock is trading at $10 per share and you buy a put, assuming the stock will drop. A month later the same stock is trading for $5 per share. What is the next step?

Answer 1

You simply sell the put that you had acquired. Assuming that you have purchased a put which is exercisable at $10, you would then have a profit. The intrinsic value of a $10 put when the stock is at $5.00 is $5.00.

The exact value of the put depends on how much additional time is left before expiry of the put.

Answer 2

Sell your put, it went up in value.

As a side note, a put is not a call.  A put is a short option, and a call is a long option (betting on a gain)

Answer 3

There are puts and there are calls, but there is no such thing as a put call.

Your question omits the all important expiration data and the all important strike price.

Depending on these omitted details, the put may be sold to someone else.  If there is an increase in value of the put, you will have made a profit.  If the strike is 5 and it expires tomorrow, it's almost worthless.

Answer 4

You can make money on the put by one of two ways

1 If the price of the stock has gone down the put price has probably increased. You can sell the put for a profit, or

2 You can exercise the put.  this would make you sell the stock at the strike price you bought.  This can be desirable if you feel the stock is still going down and want to short it.

Just remember if you do that you must have enough free money in your account to short the stock.

Answer 5

Hi, James,

I say -- sell any and every option you own, right now, because if you don't know a put from a call, you shouldn't be buying or selling either one. You need to get out while you have money left.

Also, you shouldn't be executing trades if you don't know and understand all the factors that go toward making your trade successful or not, and having a plan as to what you'll do in each possible situation.

It's not my place to lecture you, so I hope I don't sound too fussy, but it seems somebody told you that options are a good way to make money, and you jumped in without doing your research.

Options are also a great way to LOSE money. I'd go so far as to say that all amateurs who buy and sell puts and calls will lose money in the long run.

I suggest that you take any profits you have from this transaction and invest in a few books on options. Learn the basics, then invest ONLY in writing covered calls.

To make long term money buying and selling puts and calls, you must know in what direction a stock or other security is going to go in a short length of time.

Unless you have a crystal ball guaranteed by God, you're guessing. Sometimes you'll guess right, sometimes you'll guess wrong. But in the end you'll lose money by paying commissions and by paying professional options traders too high of a price for your guesses.

best, Rick Stooker

Answer 6

When the stock price goes down, the value of the put will increase, especially if it's "in the money."

You can sell your put for a profit.