![]() Let’s say a trader purchased a $22 strike put and paid $2 in premium. PUT OPTION BUYERįor the buyer, the return on the trade is calculated by taking the strike price minus the ending stock price plus the premium paid. When calculating the profit on a put option, there are two different scenarios depending on whether you are the buyer or the seller of the option. When determining the profit for the put option buyer we need to take into account to cost of the premium. This is the sellers to keep no matter what happens. Put Option Premiumįor receiving the right to sell the underlying shares, the put option buyer must pay to the seller a premium. If you’re a more advanced trader, you will want to check out these articles. If you’re new to options, you may want to check out my 11,000 word beginner guide by clicking the button below. On the other hand, the seller of a put option has an obligation to buy the stock if the buyer exercises the option. Up until the contract expires, the buyer of a call has the right to sell the stock at the agreed price. The contract will be for the right to sell a certain stock at a certain price, up until a certain date (called the expiration date). ![]() What Are Put Options?Ī put option is a contract between a buyer and seller. Today, you will learn that and even get a nice calculator for you that you can download and use for yourself. When trading put options, beginners may not understand how profits are calculated. Put options are a great way for traders to protect a portfolio of stocks or as a way to take short exposure on a stock.Ī put option gives the owner the right, but not the obligation, to sell the underlying asset at a specific price through a specific expiration date. Before we get to the put option calculator (which can be downloaded below), let’s have a quick discussion about put options generally.
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