Put Contract Features

Each put option contract includes the underlying stock, the strike price and the expiration date. The put option owner has the right, until the expiration date, to exercise the put and sell 100 shares of the underlying stock for the strike price. Options on a particular stock are available in a range of strike prices above and below the current value of the stock. Expiration dates include the current month, the following month and at least every third month out to nine months in the future.

Selling Put Options

The trader who sells put options wants the stock price to stay level or go up. The put seller receives the price or premium paid by the put buyer and must be ready to buy the stock shares if the option is exercised. The profit for the put seller occurs if the option reaches expiration out-of-the-money. The maximum amount of profit is the money received from selling the put option. If the stock price goes in-the-money, the profit on the sold put will be reduced by the amount the stock is ITM.

Rewards and Risks

References

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