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Can you explain this further? Is a put contract essentially saying that this stock is not worth it and will lose its value in the next few months?
by perseusprime11 9y ago
Can you explain this further? Is a put contract essentially saying that this stock is not worth it and will lose its value in the next few months?
- workthrowaway27 9y agoA put allows you to sell an asset at a certain price in the future. So, say I bought a put option with a strike price of 10k USD for bitcoin 5 years from now. If in 5 years the price of BTC is less than (10k - the price I paid for the put option) I can buy a BTC for whatever it currently costs, sell it at 10k to whoever took the other side of the option and make a profit. The risk is that if the price of BTC is above 10k, then I'm out the money the put option cost me.
- perseusprime11 9y agoInteresting. Thanks for the example. Looks like Put option limits the risk so if bitcoin becomes 15K then I have to shell out 5K from my pocket.
- workthrowaway27 9y agoActually, if bitcoin becomes 15k then you don't have to pay anything. The put option gives you the "option" to sell a bitcoin for 10k (in this example), but you're not required to do so. In practice you only sell it if you'll make a profit. So in the case where bitcoin is 15k after 5 years your put option is worthless and you've just lost whatever the put option cost when you bought it.
- perseusprime11 9y agoIs there any good literature that makes it easy to learn this aspect? How much does a put option cost typically?