• Put Option Trading Strategy

    For a Put option, Put option buyer earns profit if the share price goes lower than the strike price. If the share price moves above the strike price, then the Put option buyer looses the premium paid for the Put option. Put option buyer buys a Put option when he is sure that the share price is going to move lower than the strike price and tries to make profit out of the same.

    At the same time, Put option seller earns the premium as profit if the share price stays/moves above the strike price. But he looses money if the share price goes lower than the strike price and the Put option buyer exercises the Put option. Put option seller sells a Put option when he is sure that the share price is unlikely to go lower than the strike price and tries of make profit from the Put option premium by betting on the same.

    The below table shows the payout for “Buy Put” and “Sell Put” options with the movement of share price. Here Strike Price (X) = USD 100 and Premium paid for Put Option is USD 5.

    Put Option Table

    The below Diagram shows the payout for “Buy Put” and “Sell Put” options with the movement of share price.

    Put Option Diagram

    Breakeven Price at Strike Price + Premium Paid = (100 – 5) USD = 95 USD. This is shown in the above diagram.

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