Buying and selling share options
Retrieved from " https: The writer seller of a put is long on the underlying asset and short on the put option itself. A put option is said to have intrinsic value when the underlying instrument has a spot price S below the option's strike price K. Trading options involves a constant monitoring of the option value, which buying and selling share options affected by changes in the base asset price, volatility and time decay.
If the buyer exercises his option, the writer will buy the stock at the strike price. Prior to exercise, an option has time value apart from its intrinsic value. If it does, it becomes more costly to close the position repurchase the put, sold earlierresulting in a loss.
A naked putalso called an uncovered putis a put option whose writer the seller does not have a position in the underlying stock or other instrument. That is, the seller wants the option to become worthless by an increase in the price of the underlying asset above the strike price. Generally, a put option that is purchased is referred to as a buying and selling share options put and a put option that is sold is referred to as a short put. This article needs additional citations for verification. A share option will be granted by a formal agreement.
This strategy is best used by investors who want to accumulate a position in the underlying stock, but only if the price is low enough. The buyer will not exercise the option at an buying and selling share options date if the price of the underlying is greater than K. If the buyer does not exercise his option, the writer's profit is the premium. Another use is for speculation:
That is, the seller wants the option to become worthless by an increase in the price of the underlying asset above the strike price. Unsourced material may be challenged and removed. In order to protect the put buyer from default, the put writer is required to post margin. A share option is as an agreement allowing a party to acquire shares buying and selling share options a company at some date in the future. There are several situations in which share options might be used, including:
The writer sells the put to collect the premium. By put-call paritya European put can be replaced by buying the appropriate call option and selling an appropriate forward contract. The put writer's total potential loss is limited to the put's strike price less the spot and premium already received. But if the stock's market price is above the option's strike price buying and selling share options the end of expiration day, the option expires worthless, and the owner's loss is limited to the premium fee paid for it the writer's profit.