1. Logic:
-Put option buyer: The underlying security price is expected to fall. The buyer has the right to sell the agreed number of underlying securities to the option seller at the agreed price within the agreed time. The buyer only enjoys the right and does not undertake the obligation to sell.
-Put option seller: assumes obligations and does not enjoy rights. When the buyer exercises his rights, the seller must buy the underlying securities at the agreed price. If the buyer can't exercise his rights, the seller doesn't have to buy.
2. Profit and loss:
-Put option buyer:
-sell in advance and close the position: the profit and loss is the bid-ask difference of the option contract; Buy low and sell high for profit; Buy high and sell low.
-Holding expiration: If the option is fictitious or flat, the buyer can't exercise the right and lose all the royalties.
-If the market price of the underlying securities is lower than the exercise price, but higher than the difference between the exercise price and the royalty, the buyer begins to make a profit, and the profit is limited by the royalty.
-Put option seller:
-Buying and closing positions: the profit and loss is the bid-ask difference of the option contract, with high selling and low buying for profit and low selling and high buying for loss.
-Maturity of holding: When the put option is in a non-physical state, the seller will not be exercised and get all the royalties, with the maximum profit.
The profit and loss of put option buyers and sellers are relative, and the profit of one party is the loss of the other. When the price of the underlying securities exceeds the exercise price, the buyer cannot exercise, and the loss is the paid royalties; When the price of the underlying securities falls to a certain extent, the buyer begins to make profits from the underlying securities, but the profits are limited by royalties. The seller gains while the buyer loses money until the price of the underlying securities is less than the difference between the exercise price and the royalty, and the seller begins to lose money.
Summarize the basic principle of put option.
When buying a put option, the buyer pays a certain amount of royalties to the seller to obtain the right to sell the subject matter at the exercise price at some future time.
When the price of the subject matter falls, the option buyer can exercise or close the position and get the benefit of the price drop.
When investors expect the market price to fall rapidly, they can buy put options. Buying put options can avoid expanding losses due to rising prices, and at the same time get more gains with less money when prices fall.
Timing and method of buying put options
Timing:
1. The option price is cheaper when the volatility is low: the volatility is an important factor in the option price. When the market volatility is low, the option price is usually relatively cheap, so the buyer can get the put option at a lower cost.
2. Periodic change of market fluctuation: Market fluctuation often changes periodically. Buying put options when the volatility is low, in the hope that the volatility will rise, can increase the value of options, and thus gain greater income potential.
3. Extreme price occurs when the expected trend reverses: when the underlying asset price reaches an all-time high, buy a put option, and the expected market may reverse. This strategy aims to capture the possible downward trend of the market and thus profit from market changes.
Method:
1. Choose an option contract with sufficient liquidity: liquidity is one of the key factors in option trading. Choosing an option contract with sufficient liquidity can ensure that it is easier to enter and leave the market, reduce the slip points in trading and improve trading efficiency.
2. Choose an option with a suitable term: the expiration time of the option is an important consideration. Buyers need to choose the appropriate time limit according to the expected time frame of the market. The longer the term, the greater the flexibility, but the higher the cost.
3. Expected range of market price decline: According to the analysis of the future trend of the market, the buyer can choose to buy put options with different imaginary values. If the expected decline is large, you can consider buying options with deep imaginary value to increase the potential income.