And they are also used to make money when stock's fall in price. Buying Call options allow you to make money when stocks rise in price and buying Put options allow you to make money stocks fall in price. You see, most investors watch the stock market fall in price and complain about how much money they are losing. And while you are feeling helpless there are other investors that are happy and worry free because they insured their stock portfolios with Put options.
By using this relatively unknown investment tool you feel more in control because you are able to make money on the way down. Put options are a way to profit from a downturn in the stock market without shorting the stock. Short selling is beyond the scope of this lesson however if you understand the concept of shorting stocks it will help you to understand the power of Put options. In the previous two lessons we discussed how Put options are used as a hedge insurance against a decline in stock price.
This lesson focuses on yet another use, buying Put options to trade them for a profit. You are going to buy Put contracts that you think will increase in value. Once they do increase in value you will sell them for a profit. A Put option gives its buyer the right, but not the obligation, to SELL shares of a stock at a specified price on or before a given date. Married and Protective Puts are purchased to protect shares of stock from a sharp decline in price.
When you buy only the Put option it completely changes the dynamics of the trade. You want the stock price to fall because that is how you make your profit.
In "most" cases you never intend on exercising your rights to sell the stock. You just want to benefit from the movement of the stock without having to own the stock, and you can do this with Put options. Why, because you hold a contract that gives you the right to sell something for more than its market value.
Yes this seems unfair and logically this doesn't make sense, but this is just the nature of the terms of the option contract. It's like baseball cards. Baseball cards are literally pieces of cardboard, yet some of them can sell for thousands of dollars because there are only a limited number of them in the world. Because only a limited number are available it makes the cards more valuable.
This makes your contract more valuable so you essentially turn it around and sell it at a higher price. Put options gain value when stock prices fall and there is only so far a stock can fall in price. In the next lesson you will see a real example and how it works, but for now let's cover the risk.
The max you can lose with a Put is the price you paid for it that's a relief. So if the stock goes up in price your Put will lose value. It's better than losing thousands of dollars if you were to purchase the stock and it fell in price. These are real numbers you can verify yourself. Crashes are launching pads that launch you from financial struggle to financial freedom. Most people only hear about the bad stuff that happened during the Great Depression.
They never hear about all the Great Depression Millionaires. And buying Put options is just one of the ways you can do just that. Message from Trader Travis: I don't know what has brought you to my page. Maybe you are interested in options to help you reduce the risk of your other stock market holdings.
Maybe you are looking for a way to generate a little additional income for retirement. Or maybe you've just heard about options, you're not sure what they are, and you want a simple step-by-step guide to understanding them and getting started with them.
I have no idea if options are even right for you, but I do promise to show you what has worked for me and the exact steps I've taken to use them to earn additional income, protect my investments, and to experience freedom in my life. Options Trading Made Simple Book. Marketclub Options offered via Marketclub. The Options Trading Group, Inc. All stock options trading and technical analysis information on this website is for educational purposes only. While it is believed to be accurate, it should not be considered solely reliable for use in making actual investment decisions.
Futures and options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses.
You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed in this video or on this website. Please read "Characteristics and Risks of Standardized Options" before investing in options.
Suite C , Lewiston ID Free Options Course Home: Option Basics Module 2: Option Value Module 3: Option Strategies Module 4: Stock Charts Module 5: Using Indicators Module 6: Technical Indicators Module 6:More...