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I don't think this is right; you're thinking of buying a put. When you write (sell) a put option you are giving somebody else the right to force you to buy the
by ericbarrett 6y ago
I don't think this is right; you're thinking of buying a put. When you write (sell) a put option you are giving somebody else the right to force you to buy the underlying security at a given price floor. Should the equity fall below that price, you (the seller) are then obligated to spend the extra money over and above the market price to purchase the stock. Otherwise, the buyer won't exercise the option and you keep the fee.
Now I am no options trader, so if I've missed something (very likely) please correct me.
- thebean11 6y agoOh you're right, I misread the second half of that, thought it was buying puts.
- benibela 6y agoI talked about both ways. Either buy the shares and buy an option as insurance, or only sell an option for the "pennies" In the first case, you can have unlimited profit if the stock goes up, a slight lose if it trades sideways, limited downside no matter how much it drops (or possibly profit, if you have a lot of options) In the second case, the steamroller is not so bad. If I am forced to buy above the market price when the option gets exercised, that is still below the marker price at the time I sold the option. Thus it is better than the alternative -- buying shares rather than selling the options. Then there is limited upside, limited downside, and a profit if it trades sideways