In what way one can make profits by "Put" option ?
Answers:
Put options besides being a speculative vehicle also can be used for other purposes.
1. They can be purchased when one thinks that a particular stock is overpriced and ready to drop. It is a limited risk version of selling short. With index options one can even protect against a market drop.
2. Becuase there is a premium associated with the put, one can sell a naked put if one is in the market to buy the underlying stock. That willl allow one to purchase the stock at a discount to the market in certain circumstances. Or if the stock rises in value and the put is not exercised, one can pocket the premium. Easy way to make some pocket change in a rising market.
3. Puts can be used as an insurance policy, so to speak. Buying a put is a means of protection against a market selloff in the underlying stock or even in a portfolio of stocks if the put is against a market index. If there is a large drop in the market, one can exercise the put or sell it for a profit.
if the stock price goes down.
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