Long Put: Going Long in a Put is a strategy that is opted when the option trader is Bearish on the market direction going down in the short-term. If we think Index or Stock will fall buying put is advisable
Put options have a limited lifespan. If the underlying stock price does not move below the strike price before the option expiration date, the put option will expire worthless.
When you buy a put option you want the stock price to fall. Even if it falls to zero, your put option gives you the right to sell it at the specified price
In Indian Terminology we would say a put is purchased when a trader feels market will be in Mandi
Nifty Options Buy Put
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Buy 1 ATM Index Call
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Investor View: Bearish on Index or Stock
Risk: Limited to premium paid + Brokerage + Commissions Paid
Reward: Unlimited
Illustration:
Index
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Nifty
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Nifty Lot Size
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50
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Underlying Strike Price
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5500
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Put Premium
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35.80 (Premium Paid)
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Breakeven Point
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5464.20 (Strike Price – premium paid)
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 |
| Log Put |
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<!--[if !supportLists]-->· <!--[endif]-->Maximum Profit: Unlimited
<!--[if !supportLists]-->· <!--[endif]-->Profit Achieved when Nifty Settlement Value < Nifty Strike Price + Premium Paid
<!--[if !supportLists]-->· <!--[endif]-->Profit : Nifty Strike Price – (Nifty Put Strike Price + Premium Paid)
Breakeven Point: Formula for Breakeven point
<!--[if !supportLists]-->· <!--[endif]-->Breakeven point : Nifty Put Option Strike Price + Premium Paid
Nifty Closing Price @
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Profit/Loss
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5200
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+13210 (Profit)
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5300
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+8210 (Profit)
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5400
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+3210 (Profit)
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5500
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-1790 (Loss)
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5600
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-1790 (Loss)
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5700
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-1790 (Loss)
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5800
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-1790 (Loss)
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Example:
Let us assume Nifty will decline in the near future, an options trader purchases a 25th April put with a strike price of 5500 for a quoted premium of ` 35.80/- per contract. With a contract multiplier of 50, the cost of the Nifty index Put option comes to ` 1790/-
Suppose Nifty went to 5400 in April and the option trader Nifty April 5500 Strike Price Put option expires in the money. At Settlement value of 5400, Nifty 5500 call option will possess an intrinsic value of ` 64.2/- and exercising this option will give the trader a settlement amount of ` 5000/- (i.e 100 X 50 lot size). Taking in consideration the cost of option itself, which is ` 1790 (35.80 X 50 Lot Size)/-, traders net profit comes to ` 3210/- (64.2 X 50 Lot Size)
Suppose Nifty Settled down to 5600 in April and the options trader’s Nifty April 5500 Index Put expires out of the money, at the expiry date settlement value of Nifty @ 5600 , call option expires worthless with zero Intrinsic value resulting in net loss of premium paid
For More Information about other strategies kindly click on below links
Guide To Options Basics
Long Call
Short Call
Short Put
Long Straddle
Short Straddle
Synthetic Long Call
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