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Profit Potential of Buying Put Options / Long Put Options :
Buying Put options / Long Put Options allows you to profit with unlimited ceiling. That means that your profit grows as long as the underlying stock continues
to fall.
Profit Calculation of Buying Put Options / Long Put Options :
Profit = (Strike Price Of Put Options Bought - Stock Price At Expiration) - Premium Value Of Put Options Bought
Risk / Reward of Buying Put Options / Long Put Options:
Upside Maximum Profit: Unlimited
Maximum Loss: Limited
Net Debit Paid. The most one could lose is the entire amount put forward into buying Put options when the underlying stock expires out of the money (OTM).
Break Even Point of Buying Put Options / Long Put Options:
Breakeven Point = Strike Price - Premium Value
Advantages Of Buying Put Options / Long Put Options:
Loss is limited if the underlying financial instrument rises instead of fall. This allows one to risk little money for the same moves
in the underlying stock versus using other instruments like futures.
It allows traders with different risk appetite and portfolio management strategy to pick Put options with strike prices and delta
values that fulfills that trading objective.
It is the most basic option strategy where an option trader could simply transform into other option strategies in order to hedge
one's position by buying or selling more options.
It is a simple option strategy which requires no precise calculation to execute, unlike other complex option strategies.
As it involves buying only one kind of option, the commissions involved would be much lower than the rest of the other
complex option strategies.
As buying Put options / long Put options do not involve margin, unlike in a short Put option strategy, literally any beginner
option trader can execute this simple option strategy.
Disadvantages Of Buying Put Options / Long Put Options:
There is the danger which you could lose all your money if you use all your money into this strategy and then the underlying stock
rises instead of falls, expiring the Put options out of the money.
Put option premium is subjected to time decay, so the
value of the option actually depreciates daily until expiration. However, this is not a concern if one intends to hold the Put options all the
way to expiration.
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Important Disclaimer:
Options involve risk and are not suitable for all investors.
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