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A 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. I
by workthrowaway27 9y ago
A 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?