Puts are certainly nothing to be afraid of. When used properly, they can add a whole new dimension to your trading.

Put Option

What are puts, exactly? Put options are basically the reverse of calls: A put, on the other hand, gives the owner the right to sell stock at the strike price for a limited time.

If you own a put on stock XYZ, you have the right to sell XYZ at the strike price until the put option expires. Your maximum possible profit is obtained if the stock declines all the way to zero.

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The math for determining the profit is equal to the strike price less the premium paid for the put. Don't forget to factor commissions and taxes in there, too. On the other hand, the maximum potential risk is losing the entire premium paid to purchase the option.

This happens if the stock is at or above the strike price at expiration. This would occur if the stock is at the strike price or higher. However, you would hit the maximum potential risk if the stock fell to zero. Again, these calculations don't factor in commissions or taxes, but in real-world trades you need to consider both of those.

Options involve risk and are not suitable for all investors. Options investors may lose the entire amount of their investment in a relatively short period of time. Prior to buying or selling options, investors must read a copy of the Characteristics and Risks of Standardized Options brochure PDF , also known as the options disclosure document. It explains the characteristics and risks of exchange traded options.

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Put Option Explained | Online Option Trading Guide

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How To Sell Put Options To Benefit In Any Market

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