When purchasing an option, you’re betting that the price of a stock will reduce over a certain period. But when selling a put option, you’re betting that its price will remain constant or increase. In this article, we’ll answer the question,” How do you buy put options? And what is a buy put option?
Explained: Sell Put vs Buy Put Strategies
Options trading is one of the most efficient methods for accumulating wealth. But for you to make some profit, you need a reliable put trading strategy. Luckily, there are lots of reliable sell put vs buy put trading strategies that you can employ, with the best ones being:
- Bull put spread: this option falls under the buy or sell put credit spread category. It includes traders investing if they believe that the price of an asset will increase within a short time.
- Bear put spread: investors using this strategy believe the value of the asset will decline. It includes buying and selling the put options of the same asset with similar expiration dates and low prices.
- Synthetic put: This strategy resembles long-put options since you’ll be holding a long call option and short stock position of the same stock.
Maximizing Profits: Sell Put Credit Spread Strategies
A put credit spread strategy must include predetermined reward and risk. This means that you can set the maximum loss and profit before executing a trade. To execute this strategy, you can sell the put and then purchase the lower strike in the same order.
Basically, you’ll purchase an option at a strike price below its present value. And then sell another at an even lower price. The difference between these two prices is your credit or premium.
The maximum profit is usually equal to the net credit received. Your loss will be the difference between the strike prices and the credit received.
Traders use this strategy when they have a bullish or neutral opinion and don’t want to tie their capital.
When to Buy Put Options and When to Sell Put Options
Purchasing put options can be attractive to traders who believe that a stock’s value is about to decline. When you buy a put option, you believe that the price will decline before the expiration date. Buying puts is basically a form of insurance against a decline in price.
Since you already know when to buy puts and calls, then we need to talk more about the sell put option meaning. Investors sell put options when they’re comfortable with owning certain assets at a predetermined price. With sell call sell put option, traders believe that the price will remain the same or increase in the future.
Decoding Buy Put Options: Meaning and Benefits
Investors buy put options when to increase their profit from a stock whose price is dropping. For a small fee, you can profit when the price stays below the strike price until it expires. So when you buy put option, you expect their price to drop.
You can also profit from buying put options when hedging against long positions. Therefore, when you own some stock, you should assume that the price can go against you. So, you can protect your investment by buying put options.
Buy Put vs. Sell Call: Comparing Options Strategies
Now that you know the answer to the question “How do you buy puts and calls?” we need to compare trading strategies. After all, experienced traders don’t just purchase options; instead, they use the above sell call, sell put, or buy put strategies.
Straddlers can use a long straddle option trading strategy. Long straddles include investors trading in assets with buy put sell call same strike price and expiration date. They use this strategy when they believe the price will go out of range., but don’t know the direction.
But if you know the direction, you can use bear put spread. Some of the best leveraging strategies include a protective collar and married put.