Put Option Review

Hello fellow Option Traders:

PUT OPTION: An option that gives the right to a seller to sell the underlying stock contract at the strike price.



Strike price

As long as the market price is below the option strike price, the put option contract is said to be "in the money". On the expiration date, if the price of the stock is above the strike price, then my put option expires worthless. In the case of put options, it is the market value of the underlying stock minus the strike price. A put option for which the strike price is equal to the stock price is said to be an "at the money" put option. If the strike price is below the stock price, the put option is said to be an "in the money" put option. In answering this question, the first thing to note is that the prices of put options vary depending upon the strike price. The lower the strike price, the more expensive the put option. This makes sense because a put option gives the holder the right to sell the underlying option contract at the strike price. The breakeven is calculated by adding the strike price to the premium of the call option.

The put option price can go to zero as the asset price rises way above the strike price. Don't be tempted by inexpensive put options having a very low strike price. Thus, purchasing a put option requires two immediate decisions: you have to decide on the strike price and the expiration month. If the underlying stock price does not move below the strike price before the option expiration date, the put option will expire worthless.