Options Trading Strategies | The short put.
About options trading strategies, today we will talk about the short put.
The sellers of a put option think about how to benefit from the increases of price of the underlying or be protected from them. They have a neutral vision or lightly upward of the market and usually hope that it should diminish the volatile nature.
Although selling puts carries the potential for unlimited losses on the downside they are a great way to position yourself to buy stock when it becomes “cheap”. Selling a put option is another way of saying “I would buy this stock for the strike price if it were to trade there by the expiration date.”
His risk, his potential of loss, is unlimited to the expiration on a descending market, whereas the premium has his benefit left limited.
The threshold of profitability in this operation, is the price of exercise – the price of the premium. On the other hand to emphasize that his delta increases up to 1 as they lower the prices of the underlying assets.
More BULLS are the expectations of the market, the put must sell to itself in the position ITM (in the money) as deep as possible to maximize the obtained premium, that is to say that the highest price of exercise must be for the seller of the put option.
Let’s put an example: An investor has seen as the quotation of an action in several occasions it was touching 5 dollars and then it was bouncing. At present the above mentioned quotation is collapsing and he does not believe that he falls below 5 dollars, for what it sells a put to 5 dollars and if everything goes out as thinks that the premium will be deposited without having losses, although if it falls below the 4,5 it will begin to obtain losses of this operation
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