Some people don’t understand that you can actually be a seller of options. They think that you can only buy a put or buy a call, but this is not the case. Just like a car dealer will sell you a car before it’s even in their inventory, you can do the same thing with option contracts; you can sell them, even if you don’t have them.
You’re selling these contracts to other people that are interested in buying them. The issue is you will have to deliver what you promised based on the contract, which can go in your favor, but it can also go against you. That’s why you have to be very careful when trading options.
You need to understand that there are four parts to a trade. You can be a buyer of a put or a seller of a put, and you can be a buyer of a call or a seller of a call. Those are the four parts to trading an option contract.
If you’re a buyer of a call, you want stock prices to go up. If you’re a buyer of a put, you’re looking for that price to go down in the stock.
However, if you’re a seller of a call, you want prices to go down. And if you’re a seller of a put, you want prices to go up. These are the combinations that you have available.
In this video, we’re going to take a look at the risk profile picture when it comes to selling a put. We’ll also take a look at selling a put option contract on a trading platform. That way you can understand how it works, and how you can make money from it.
The problem with selling option contracts is that you have unlimited loss. When it comes to selling a put, your unlimited loss can actually only go down to zero, because the stock price can only go down to zero.
Another issue with selling contracts is that you’re capping or creating a max profit potential, whereas if you’re buying a call or a put, you have unlimited profit potential.
However, the advantage of selling option contracts is that you don’t have to worry about the theta or time decay because this actually works in your favor. And also, you don’t really need that stock to move, whereas, if you buy a call, you often times need to move to the upside. In this case, that stock can actually stay still, or even move down against you a little bit and you can still make money.
That’s one of the huge advantages to selling these put contracts because it allows you to have a larger chance of success.
Posted at: http://tradersfly.com/2018/01/selling-a-put-option/
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