what is put options strategies in stock market | call and put options - samco securities
TRANSCRIPT
What is a Put Options?
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What is Put Options?• As we know options is a derivative instrument and Call and Put are
two types of options. To know more about call options, refer the call options article. Here, we’re going to emphasis on put options.
• Buying a the Put option gives buyer an option to “SELL” underlying asset at strike price with an expiry date on this contract. So buyer of a put option expects price of an underlying asset to go down and therefore seeks to protect the downside risk or profit from the downside.
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Put Option Example• A classic example of a put option in common business is that of an
underwriting contract. In an underwriting contract, the underwriter (similar to a put option seller) is obliged to buy at a certain price if the demand and price of the underwritten asset is lower than the agreed price.
• In such a case, the owner of the underlying asset has the option to sell his asset to the underwriters at a fixed price. This option to sell exercised by the asset owner is nothing but an exercise of the put option.
• How are put options different from call options?
• The fundamental difference between put options and call options is that put options give the buyer a RIGHT TO SELL the underlying asset whereas call options give the buyer a RIGHT TO BUY the underlying asset.
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Points under consideration while trading put options
• One can trade put options in lots only.
• In India, we have adapted European Options style, Expiry date is fixed viz. last Thursday of the month (in case Thursday is a trading holiday previous working day).
• In the money put option – when the current market price of underlying asset is less than the strike price.
• At the money put option – when the current market price of underlying asset and the strike price are identical.
• Out of the money put option – when the current market price of underlying asset is more than the strike price.
• Just for reference, let’s assume share price of ABC Company is Rs. 100 and lot size of 50 units. Trader A has bought a put option of an ABC company of 100 strike price (agreed upon price). Now if on the day of expiry share price of ABC Company closes below Rs. 100. Buyer is in profit.
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The Pay Off Chart for a Put Option
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Contact US• SAMCO Securities Limited / Indian Trading League
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