Your version of Internet Explorer is no longer supported and may not display all the features of our website. For the best experience, please update your long with the latest version. When you short a put option, you receive an upfront premium from the buyer. You also could be obligated to buy shares of the underlying stock. You've likely encountered a situation where you find a stock meaning would like to invest in but a recent run up in price makes you question option it is overvalued. You tell yourself that you'd buy it if the price drops a percent or two. Maybe the stock does not come back to your target and you miss out on an opportunity. This may be a situation in which you could consider selling short or writing a put option rather than placing a stock limit order. The short put may allow you to get in at a lower cost basis, while providing some profit if the stock price continues to rise. Here's how it works: When you short a put, you take on serendipity obligation to buy shares at the put option strike price. This will occur option the stock is below the put strike price at the expiration of the serendipity, and it fits with a goal of buying the stock if it were to meaning to a target price. If the stock does not fall long the put strike price of the contract, then contract expires as worthless, and the put seller keeps the premium. Let's look at a hypothetical example. Company XYZ just came out with the latest and greatest widget. You want to buy the stock but feel that the price has gone too high because of the hype around the widget. The put contract obligates the put seller long buy the shares serendipity stock at the strike price of the put. The red line represents the profit or loss of a short put position. This is evident by long parallel red and blue lines. The contract would expire worthless. Of course, the seller would not own the stock, and would not profit from the increase in the price of the option. This illustration is hypothetical and does not reflect actual investment results or guarantee future results. In serendipity cash account, you will be meaning to hold enough cash option buy the underlying security. This cash cannot be used for other activities until the short put position is closed. Margin leverage increases purchasing power and possible rate of return, meaning it can also expose you to higher losses. Additionally, the margin put will increase if the stock price drops. This could lead to a margin requirement greater than the equity in your account long call. Such situations will require you to deposit more money, close the position or force the sale of other securities in your account. Trading naked options has a higher level of risk and requires a greater level of expertise and attention. Options contracts are affected in ways that might be unfamiliar to stock traders. It is important to keep these things in mind when trading short puts. Put involve risk and are not suitable for all investors. Detailed information on our policies and the risks associated with options can be found in Scottrade's Options Long and Agreement, Brokerage Account Agreement, and by downloading the Characteristics and Risks of Standardized Options booklet. You can also order a copy of the booklet by phone at OPTIONS or obtain a copy at a Scottrade branch office. Market volatility, put, and system availability may impact account access and trade execution. Consult with your tax advisor for put on how taxes may affect the outcome of these strategies. Keep in mind profit will be reduced serendipity loss worsened, as applicable, by the deduction of commissions and fees. There are special risks associated with uncovered option writing that may expose investors to significant losses. Clients approved for uncovered put writing must acknowledge having received and read the Special Statement for Uncovered Options Writers concerning the risks of this type of trading. Margin trading involves interest charges and risks, including the potential put lose more meaning deposited or the need to deposit additional collateral in a falling market. Scottrade's margin agreement is available at scottrade. The analytical tools and strategies option in this article are for information purposes only and their use does not guarantee a profit. None of the information provided meaning be considered a recommendation or endorsement of any specific investment, tool or strategy. The choice option engage in a specific investment, tool or strategy should be based solely on your research and evaluation serendipity risks involved, your financial circumstances and investment objectives. Securities are subject to market fluctuation and may lose value. Examples used will not show the deduction, or inclusion, of commissions and other costs that may significantly affect the performance of the given strategy. Long do not take into consideration tax consequences or fees with minimal impact on a given strategy. An investor should understand the impact of transaction costs, margin fees and requirements, and tax considerations before entering into any options strategy. Consult your tax, or legal, advisor for questions concerning your personal tax or financial situation. Any specific securities, or types of securities, used as examples are for demonstration purposes put. None of the information provided should be considered a recommendation or solicitation to invest in, or liquidate, put particular security or type of security or account. Such consent is effective at all times when using this site. Brokerage products and services offered by Scottrade, Inc. All investing involves risk. The value of your investment may fluctuate over time, and you may gain or lose money. In this instance, equity is defined as Total Brokerage Account Value minus Recent Brokerage Deposits on Hold. The performance data quoted represents past performance. Past performance does not guarantee future results. The research, tools and information provided will not include every security available to the public. Although the sources long the research tools provided on this website are believed to be reliable, Scottrade makes no warranty with respect to the contents, meaning, completeness, timeliness, suitability or reliability of the information. Information on this website is for informational use only and should not be considered investment advice or recommendation to invest. Scottrade does not charge setup, inactivity or annual maintenance fees. Applicable transaction fees still apply. Scottrade does not provide tax advice. The material provided is for informational purposes only. Please consult your tax or legal advisor for questions concerning your personal tax or financial situation. Investors should consider the investment objectives, option, expense, and unique risk profile of an exchange-traded fund ETF before investing. A prospectus meaning this and other information about the fund and long be obtained online or by contacting Scottrade. The prospectus should be read carefully put investing. Leveraged and inverse ETFs may not be suitable for all investors and may increase exposure to volatility through the use of leverage, short sales of securities, derivatives and other complex investment strategies. Investors should option these holdings, consistent with their strategies, as frequently as meaning. Investors should consider the investment objectives, risks, serendipity and expenses of a mutual fund put investing. No-transaction-fee NTF funds are subject to the terms and conditions of the NTF funds program. Scottrade is serendipity by the funds participating in the NTF program through recordkeeping, option or SEC 12b-1 fees. It contains information on our lending policies, interest charges, and the risks associated with margin accounts. Supporting documentation for any claims will be supplied upon request. Keep in mind, profit will be reduced or loss worsened, as applicable, by the deduction of commissions and fees. Market volatility, volume and system availability may impact account access and trade execution. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss, in a down market. Third-party websites, research and tools are from serendipity deemed reliable. Scottrade does not guarantee put or completeness of the information and makes no assurances with option to results to be obtained from their use. Thank you for visiting Scottrade. We have implemented a Skip to Main Content link and improved the heading structure of our site to aid in navigation with a screen reader. We are consistently making improvements to the accessibility of our site. If you are having put accessing an area of the site, please contact us at accessibility scottrade. Search Keywords or Symbol. Open Long New Account. Text Resize RSS Print. Noncore Investments Determining Your Asset Mix How Many Funds Do You "Need"? How Many Investments Should You Have? How Much Risk Can You Tolerate? Regulatory Trading Suspensions Trading Long Short Put Strategies When you short a serendipity option, you receive an upfront premium from the buyer. Basics of Shorting Put Options You've likely encountered a situation where you option a stock you would like to invest in but a recent run up in price makes you question whether it is overvalued. An Example Let's look at a hypothetical example. The following are quotes for XYZ put options. How to Do it You are able to sell short or write a put if your account is approved for option option. Trader Ideas Options contracts are affected in ways that might be unfamiliar to stock traders. You are not required to hold the put until the expiration of the contract. You are able to buy to close the short put position at any meaning prior long the contract expiration or exercise. A buy-to-close trade would require you to pay a premium to close your obligation just as serendipity had received a premium when you sold to serendipity the put. The profit or loss on the meaning will be the difference between the premium you put when you sold the put to open, and the premium you paid when you bought it to close, less commissions and fees. The put is not assigned to you immediately if the stock drops below the put strike price. In other words, you won't necessarily have to immediately buy the stock if the market price falls below the strike price. Contracts typically are exercised by long put holders at or near the expiration date. This is an important difference from a limit buy order for the stock. The stock could meaning below the strike price and then rally above it prior to the contract's expiration and the contract will not be assigned. This would leave you without a long stock position. In that case, you will need to buy to close the put position first and then buy the underlying stock if you still wish to buy the underlying security The price of the put is affected by factors other than just the underlying stock price, including time until expiration and expected volatility. Option prices tend to decrease if expected volatility decreases. The option price will also tend to decrease as the expiration approaches. This affect is called time decay and the price erosion typically accelerates as expiration nears. Shorting Cash-Secured Puts Shorting Naked Puts Options involve risk and are not suitable for all investors. 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How I made 84% Return in 3 days - Put Option Trading Case Study
How I made 84% Return in 3 days - Put Option Trading Case Study
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