Buying Put Options Explained - How to Trade Options

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What Is a Put?
A put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset, at a set price within a specific time. The buyer of a put option believes that the underlying stock will drop below the exercise price before the expiration date. The exercise price is the price that the underlying asset must reach for the put option contract to hold value.

A put can be contrasted with a call option, which gives the holder to buy the underlying at a specified price on or before expiration.

The Basics of Put Options
Puts are traded on various underlying assets, which can include stocks, currencies, commodities, and indexes. The buyer of a put option may sell, or exercise, the underlying asset at a specified strike price.

Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities, futures, and indexes. They are key to understanding when choosing whether to perform a straddle or a strangle.

The value of a put option appreciates as the price of the underlying stock depreciates relative to the strike price. On the flip side, the value of a put option decreases as the underlying stock increases. A put option's value also decreases as its expiration date approaches. Conversely, a put option loses its value as the underlying stock increases.

Because put options, when exercised, provide a short position in the underlying asset, they are used for hedging purposes or to speculate on downside price action. Investors often use put options in a risk-management strategy known as a protective put. This strategy is used as a form of investment insurance to ensure that losses in the underlying asset do not exceed a certain amount, namely the strike price.

In general, the value of a put option decreases as its time to expiration approaches due to time decay because the probability of the stock falling below the specified strike price decreases. When an option loses its time value, the intrinsic value is left over, which is equivalent to the difference between the strike price less the underlying stock price. If an option has intrinsic value, it is in the money (ITM).

Out of the money (OTM) and at the money (ATM) put options have no intrinsic value because there would be no benefit of exercising the option. Investors could short sell the stock at the current higher market price, rather than exercising an out of the money put option at an undesirable strike price.

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#OptionsTrading #BuyingOptions #PutOptions
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

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[JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here!

[deviambati]

Hello Jake, I generally go for long calls. But it is good to learn PUT option for the bear market. I am becoming a follower due to your presentation skill in explaining in simplified way for a beginner. Thank you.

[misaelarredondo]

This video is where puts clicked for me! And potential over time is literally the best definition of extrinsic value. That’s how I explain it to everyone hope you don’t mind Jake!

[leejmuam]

Keep it up Jake. I like your contents. Straight to the point and good examples. Unlike many other YouTubers that talk 1/2 of the videos about their course or the stuff they are promoting.

[fishin]

i need someone to make a 5 minute video on "buying a put" without going all over the place.

[thomasjanowski]

First found your channel for OTS content and now I’m here. Funny how life goes. Great content Jake thanks for the help. Aim high.

[Bob-wmpz]

Some say 2024 stocks UPST. MRNA. TDOC. ROKU . BBY. TGT. PARA. SQQQ are best buy and hold for entire year. 2024 with possibble huge gain.

[Foxyfreedom]

I don’t have $9000 to go out and buy 100 shares. I’m just going to trade the contracts and never exercise. The only exercising I do is at the gym

[atlantissmojo]

you explain things simply and get right to the point so thanks for that!!!

[Mustsphmus]

keep it up soldier. Your content is awesome. I have watched most of your videos. Your content is very informative and to the point. Unlike these other youtubers who always try to sell you something and give you incomplete info. Keep it up, you will get there bro.

[jamescole]

Very good. But you should have said you don't really need to buy any stock, you can just sell the put option. That is actually the way it works.

Another way to keep it simple is to say when you buy a call option - you are betting the price of the stock is going up. And when you buy a put option - you are betting the price of the stock is going down. The rest is just the details, which you explained very well.

[senyorty]

Say I did the contract and was right but i don’t want to buy 9k of stocks. Can I just sell the contract to another person for more than the $460 I spent?

[MrBecker]

All these guys make it hard for no reason

[SandpitCrew]

Great presentation, clear and easy to understand. Thank you! Where was your channel 3-4 months ago when I started to learn options? New Subscriber here.

[tvs]

Good job explaining the Put option. Not all stocks are optionable but ones that aren't may be shortable.

[Rio-byeh]

I started watching your content because of Ukraine but you are a well informed all around educator ☀️✅💫🇺🇸🇺🇸

[marianodemiguel]

Nice! I had a hard time wrapping my head around puts. Thanks

[bido]

Why would you go an buy the actual stocks before expiration? Just sell the option before PE so you don’t have to exercise.

[MaritimeSunset]

Thank you, I am quite new to trading options and this video was so clear and concise. Great communication skills.

[wilmic]

Simple to understand with good example. I enjoy watching your Options video! Great job!