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When you sell a put, you’re agreeing to purchase the stock at the strike price until expiration in exchange for a premium. If the stock doesn’t finish expiration below the stock price, the ...
In finance, a put or put option is a derivative instrument in financial markets that gives the holder (i.e. the purchaser of the put option) the right to sell an asset (the underlying), at a specified price (the strike), by (or on) a specified date (the expiry or maturity) to the writer (i.e. seller) of the put.
Reward/risk: In this example, the put breaks even when the stock closes at option expiration at $19 per share, or the strike price minus the $1 premium paid. Below $20 the put increases in value ...
In finance, the expiration date of an option contract (represented by Greek letter tau, τ) is the last date on which the holder of the option may exercise it according to its terms. [1] In the case of options with "automatic exercise", the net value of the option is credited to the long and debited to the short position holders.
A European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. An American option on the other hand may be exercised at any time before the expiration date. For both, the payoff—when it occurs—is given by {(),}, for a call option {(),}, for a put option
The options trader makes a profit of $200, or the $400 option value (100 shares * 1 contract * $4 value at expiration) minus the $200 premium paid for the call.
In general, equity call options should only be exercised early on the day before an ex-dividend date, and then only for deep in-the-money options. For an American-style put option, early exercise is a possibility for deep in-the-money options. In this case, it may make sense to exercise the option early in order to obtain the intrinsic value (K ...
When it’s used: A trader would generally go short calls when the underlying stock may fall before expiration or at least not rise. If the stock may plummet, traders may instead consider put options.
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