The problem with this strategy is that you would have a huge capital gain on the sale of the stock and you would have to pay taxes on that gain.
Why would it be worth at least 15?
Conversely, if the market price of the stock is still above the strike price of the put option, then you'll simply let it expire, and if you want to sell the stock, you'll do it on the open market where you'll get a higher price.
To understand how put options work, it's helpful to look at an example.Selling a Call Option (also sometimes called as writing a Call Option).A lower price than the option putas en oleiros strike price) and the sale of the option to the put writer (i.e.See our long put strategy article for a more detailed explanation as well as formulae for calculating maximum profit, maximum loss and breakeven points.Investing in Growth Stocks using leapsÂ options If you are investing the Peter Lynch style, trying to predict the next multi-bagger, then you would want to find out more about leapsÂ and why I consider them to be a great option for investing in the.This is one reason that puts have less appeal and less volume than calls; the other reason that puts typically have less volume than calls is that the natural trend of the market is up so most people are expecting stocks to go.It is the risk premium.If the price of the stock on the open market falls below what's called the strike price - the specified price in the put option - then you'll usually want to exercise the option and sell the stock at the higher strike price.Of course what he has in mind is that he will sell them to you if the price falls below 48, in which case you will be at a loss by buying the shares from him at a price above the market price and.If you are looking for information pertaining to put options as used in binary option trading, please read our writeup on binary put options instead as there are significant difference between the two.
In many cases, using a put option can give you more flexibility and a more attractive potential return than other strategies.
Suppose the stock of XYZ company is trading.If you were to exercise your put option after earnings, you invoke your right to sell 100 shares of XYZ stock at 40 each.Trading Tip: Look at the graph at the lower right and note the shape of the payoff curve for owning a put option.Put option writers, also known as sellers, sell put options with the hope that they expire worthless so that they can pocket the premiums.Based on current market prices, we'll assume that the option would cost.50 per share, or a total of 150.Yet buying a put option has an advantage over selling the stock you own outright, as you can still benefit from share-price increases.In this case John is buying a Put Option from you.