Put options give you the right, but not the obligation, to sell at a specific price (strike price) by a predetermined date (expiration date). A put gives you the opportunity to profit from price depreciation in the underlying stock.

Option contracts are derivatives based on the value of underlying securities such as stock. They usually represent 100 shares of the underlying security. 

There are two reasons you might want to buy a put option: (1) You believe the price of the underlying stock will depreciate (fall) in price, or (2) To hedge your long position on the underlying asset. For example, if you own 100 shares of QQQ you would buy 1 Put to hedge against losses.

Buying a Put Option

When buying a put, someone sold you that put option. You want it because you’re expecting the underlying stock to fall in price, meaning your put option value will rise. This might sound odd, but if you own stock with a falling price, buying a put allows you to offset losses.
Buy Put Option with Flow
QQQ 317 Put Option is rising when QQQ Stock falls.
Current Strategy shows your point of purchase and it’s growth. We bought 1 Put Option.
Quickly limit loss by seeing which options are un-profitable when QQQ Stock falls.
Easily see winning options, giving you the most profit when QQQ Stock falls.

On this InFabric Strategy the price of the underlying stock (QQQ Stock) is expected to fall by 25.61%. Notice QQQ 317 Put rises dramatically, because puts rise when the underlying stock falls.

Even without knowing how a put option works it’s easy to see which options are rising here. But let’s explain:

QQQ 317 Put 2022-01-21

  • QQQ = Stock Ticker of Underlying Stock
  • 317 = Strike Price
  • Put = Put Option (expecting QQQ Stock to fall)
  • 2022-01-21 = Expiration Date

Options are derivates of a stock, and QQQ is the underlying stock. The strike price of 317 shows the value you project the price to be in the future. You think the price of QQQ Stock will fall to $317 by the expiration date.

Closing a Put Option

Exiting BEFORE Expiration:

When you sell a put option before it expires you can gain a profit if the value of your put price rose. This mean the price of the underlying stock is less than the price it was when you bought the put (stock price now < stock price at buy-in).

In our example, we could sell QQQ 317 Put Option on Aug 4 (in 17 days), giving us a 35% profit.

Exiting AFTER Expiration:

If you keep the put option until after expiration two things can happen depending on if it’s out-of-the-money or in-the-money.

Out-of-the-money means the strike price of the put option is lower than the current price of the stock (strike price < stock price). If that’s the case your put is now worth $0, so you lose all of your investment.

In our example, if we were out-of-the-money at expiration we would have seen the strategy line on the chart change from in green to red. This means the stock price changed to being higher than the strike price. AI Intelligence updates Flow charts by the minutes to show the most accurate predictions.

In-the-money means the strike price of your put option is equal to or higher than the current price of the stock (strike price ≥ stock price). Your broker will execute the option for you, meaning it will sell 100 shares for every put option contract you have, at the strike price.

In our example, if we were in-the-money at expiration we would have seen the strategy line either go further in the green, or stay about where it’s at currently. So the stock price either is the same as the strike price or lower.

In Summary

Options trading is not a simple concept by any means. Options have the reputation of being risky with barely 20% success rate, but we know you’ve got this, so here goes:

In short, you buy put options when the underlying stock price is expected to drop. Puts rise when its stock falls.

Buying a put option gets complicated when its environment changes. Will the stock price actually fall? When selling the put, will the stock actually be less than the day I bought? Which strike price do I choose? Which expiration date do I choose? How do you know which put option to choose? Maybe most importantly, how do I make sure I earn enough for this to be worth it?!

Now the good news is, the most you lose when buying a put is the price you paid for it. But even if you bought the right put you might still lose money. That’s why InFabric was created. We give you the weapons for this difficult battle.

Don’t waste time on small earnings. Earn the most with InFabric.

Click below to see which stock options are worth your time today, not weeks from today!

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