What happens when I buy a PUT Option?


Using INTC (Intel Corp) as an example, buying a put option involves a financial contract that gives you the right, but not the obligation, to sell Intel stock at a specified price (known as the strike price) within a predetermined time frame (until the expiration date).  Here's how it works:


Understanding the Put Option:  A put option is a type of financial derivative that derives its value from the underlying stock, in this case, Intel Corporation (ticker symbol: INTC).  It gives the buyer the right to sell the underlying stock at the strike price on or before the expiration date.

Selecting the Option Contract:  When buying a put option, you'll need to choose the specific contract that suits your investment strategy.  This includes selecting the expiration date and the strike price.

Expiration Date:  This is the date until which the option contract remains valid.  You need to decide how long you want the option to remain active.  Options typically expire on the third Friday of the expiration month.

Strike Price:  This is the price at which you have the right to sell Intel stock if you choose to exercise the option.  The strike price is chosen based on your expectations of Intel's stock price movement.  If you expect Intel's stock price to fall, you might choose a strike price that is higher than the current market price.

Buying the Put Option:  Once you've chosen the specific contract, you can buy the put option through a brokerage platform.  You'll need to pay a premium to purchase the option contract.  The premium is the price you pay to acquire the right to sell Intel stock at the specified strike price.

Monitoring the Option:  After purchasing the put option, you'll need to monitor Intel's stock price movement and the overall market conditions.  If Intel's stock price decreases below the strike price before the expiration date, the put option becomes profitable.  You can then exercise your right to sell Intel stock at the higher strike price, potentially profiting from the price difference between the strike price and the lower market price.

Deciding Whether to Exercise:  As the expiration date approaches, you'll need to decide whether to exercise the put option or let it expire.  If Intel's stock price remains above the strike price, it may not be profitable to exercise the option, and it may be more advantageous to let the option expire worthless.

Closing the Position:  Alternatively, instead of exercising the put option, you can close your position by closing (buying) the put option contract in the market.  This allows you to realize any profit or loss based on the difference between the premium paid and the price at which you sell the contract.

It's important to note that options trading involves risks, including the potential loss of the entire premium paid for the option contract.  Therefore, it's crucial to understand the mechanics and risks involved before engaging in options trading.  Additionally, consulting with a financial advisor or investment professional can provide personalized guidance based on your financial situation and investment objectives.  At CLiK Trading Education, we can help you learn more about options and how to trade them. 

CLiK Trading Education Ltd