Put call parity for options
Bear markets and price corrections have plagued stock prices since the dawn of our modern marketplace.
While it would be delightful to ban the volatility beast once and for all from Wall Street, such a fantasy only exists in the profit-filled dreams of perma-bulls. Fortunately, educated investors have a number of weapons at their disposal to not only survive the occasional volatility attacks, but profit from them.
Understanding Put-Call Parity | The Options & Futures Guide
While call options give you the right to buy stock, put options give you the right to sell stock. A put option gives the buyer of the contract the right, but not the obligation, to sell shares of stock at a specific price on or before an expiration date. This right to sell a stock at a set price becomes increasingly valuable as the stock price falls further and further.
This is why buying put options is touted as a bearish trade and can produce big profits when stocks tank. Buying a put is a heck of a lot cheaper and offers a fair earn money realm mad god more leverage. The first step to buying put options is identifying a stock you put call parity for options will fall in value.
Then, determine how long you plan on being in the position. Because options have an expiration date you have to choose how much time to buy.
WMT is going to drop over the next two months. Rather than simply buying a two-month put option, try grabbing an extra month or two for good measure.
Plus, you will limit the effect of time decay by using longer-term options. The next choice involves moon phases and stock market which strike price to buy.
Buying in-the-money put options is more conservative so consider starting there.
In-the-money puts are those put call parity for options a strike price above the stock price. The initial cost also represents the max risk in the position. The reward for buying put options is limited only by the stock falling to zero.
Put–call parity - Wikipedia
Just like a stock trade, the objective of our put option play is to buy low and sell high. Article printed from InvestorPlace Media, http: Financial Market Data powered by FinancialContent Services, Inc.
Nasdaq quotes delayed at least 15 minutes, all others at least 20 minutes. Trading Advice Trade of the Day Trading Report How to Trade Options. Breaking news sponsored by googletag.
Put-Call Parity
More on InvestorPlace 7 Monthly Dividend Stocks to Pay Your Bills Regularly Twitter Is Soaring. This Is Your Play. Advanced Micro Devices, Inc. View and vote in our How confident are you about the U. Choose A Page About Us Press Center Resources Advisory Services Free Newsletters Free Reports Contact Us Advertise With Us Employment Privacy Terms and Conditions Disclosures and Disclaimers Media Sites Sitemap jQuery " footer-links".