Todays video explains about put option. It also explains how to buy call option in upstox. Process is similar in other brokers like zerodha or angel one.
Put option is a derivative contract between two parties. The buyer of the put option earns a right (it is not an obligation) to exercise his option to sell a particular asset to the put option seller for a stipulated period of time.
Buying a put option
Buy a Put Option when you are bearish about the prospects of the underlying. In other words, a Put option buyer is profitable only when the underlying declines in value.
The intrinsic value calculation of a Put option is slightly different when compared to the intrinsic value calculation of a call option.
IV (Put Option) = Strike Price – Spot Price.
The P&L of a Put Option buyer can be calculated as P&L = [Max (0, Strike Price – Spot Price)] – Premium Paid.
The breakeven point for the put option buyer is calculated as Strike – Premium Paid.
Selling a put option
You sell a Put option when you are bullish on a stock or when you believe the stock price will no longer go down.
When you are bullish on the underlying you can either buy the call option or sell a put option. The decision depends on how attractive the premium is.
Option Premium pricing along with Option Greeks gives a sense of how attractive the premiums are.
The put option buyer and the seller have a symmetrically opposite P&L behaviour.
When you sell a put option you receive premium.
Selling a put option requires you to deposit margin.
When you sell a put option your profit is limited to the extent of the premium you receive and your loss can potentially be unlimited.
P&L = Premium received – Max [0, (Strike Price – Spot Price)].
Breakdown point = Strike Price – Premium received.
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