{"id":964461,"date":"2024-12-09T12:42:35","date_gmt":"2024-12-09T10:42:35","guid":{"rendered":"https:\/\/www.etoro.com\/?page_id=964461"},"modified":"2024-12-09T12:42:36","modified_gmt":"2024-12-09T10:42:36","slug":"what-are-put-options","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/academy\/videos\/what-are-put-options\/","title":{"rendered":"What Are Put Options?"},"content":{"rendered":"\n

Description<\/h2>
Put options are powerful financial tools that let you engage with the stock market in a new way. In this video, we explain four potential situations for how your option purchase can play out, related to the stock price.<\/div><\/div>

Transcript<\/h2>
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Different options can help you build out your portfolio in different ways.<\/p>\n\n\n\n

eToro has both bullish options and bearish options.<\/p>\n\n\n\n

This one’s for the pessimists – the bears.<\/p>\n\n\n\n

So, what are put options? <\/p>\n\n\n\n

They’re contracts that give the owner the right to sell 100 shares of a stock or ETF at a certain price called the strike price.<\/p>\n\n\n\n

Put options only let their owner do that for some time – they have an expiration date.<\/p>\n\n\n\n

So, why would you buy a put option?<\/p>\n\n\n\n

One speculative strategy would be to buy because you expect the stock to go down before the option expires.<\/p>\n\n\n\n

Maybe everyone else thinks that their exciting new product is going to change the world, but you can tell it’s actually awful and trash, so you buy a put option.<\/p>\n\n\n\n

Well, how would that play out?<\/p>\n\n\n\n

Understanding how options prices change is complicated, but we wanted to give you a simple blueprint for how they work.<\/p>\n\n\n\n

Good news: there’s generally only four possible outcomes at the expiration of the option and understanding these will simplify how put options work.<\/p>\n\n\n\n

So let’s get into it.<\/p>\n\n\n\n

Situation 1: Profit<\/p>\n\n\n\n

You win – to profit, the stock price needs to move below the strike price of your option at expiration.<\/p>\n\n\n\n

And not just below; below by even more than the cost of the option.<\/p>\n\n\n\n

If you bought an options contract for one dollar with a strike price of ten dollars, you will be in profit if the stock reaches a price below nine dollars before the options expiration situation..<\/p>\n\n\n\n

Situation 2: Break Even<\/p>\n\n\n\n

If the stock price exactly matches the strike price minus the premium you paid you would break even.<\/p>\n\n\n\n

Because eToro options will attempt to sell your options at 3:30 PM EST on their expiration date, if you held an option until then you would, in most cases, get back the premium you paid and this transaction would net you a whopping zero dollars and zero cents.<\/p>\n\n\n\n

Situation 3: Partial Loss<\/p>\n\n\n\n

What if at expiration the price of the stock you bought was at nine dollars and fifty cents? <\/p>\n\n\n\n

Well, to break even you needed the stock price to hit nine dollars because that’s the strike price of ten dollars minus the premium of one dollar, right?<\/p>\n\n\n\n

In this case, your option has some value.<\/p>\n\n\n\n

It’s still a contract that lets someone sell 100 shares of a stock for ten dollars that on the market only can be sold for nine dollars and fifty cents.<\/p>\n\n\n\n

Hence, if you held your option to its expiration date you would likely get back half of the premium paid.<\/p>\n\n\n\n

Situation 4: Total Loss<\/p>\n\n\n\n

Let’s say the stock price simply stays at ten dollars or, even worse, goes up higher.<\/p>\n\n\n\n

Either way, at your option\u2019s expiration date, the right to sell 100 shares of a stock for ten dollars when it’s already trading at ten dollars is worthless – everyone can already do that.<\/p>\n\n\n\n

And the right to sell it for ten dollars when it’s trading at eleven dollars at your option#s expiration date – that is very worthless.<\/p>\n\n\n\n

We hope this simplified blueprint gives you a better idea of how options work.<\/p>\n\n\n\n

Trading options isn’t right for everyone, but they do offer investors new and exciting ways to engage with the market.<\/p>\n\n\n\n

Explore eToro options today.<\/p>\n<\/div>