What are the basics of Put Option?
Generally,a lot of investors, who are contented with trading call options, are likely to avoid trading the put options. Put options add a wholly new facet to stock market investing. It is the repeal of a call option where a put gives the owner the right to sell a stock at the strike price within a specified time.
Options give traders a lot of leverage as contrast to share trading and thus most investors are concerned about the huge profit impending extended by options trading. When you own a put option, you get the right to sell at the strike price until the time the put option expires. Your maximum profit from trading a put option is got hold of if the stock tanks down to zero.
The maximum likely loss that you need to bear on a put option is the premium value that you paid to purchase the contract. This takes place when the options contract does not work in your support and you let it expire.
When you short a put option, you are obligated to buy from the put holder at the strike price. This happens when the holder of the put option exercises his option before expiration. Premiums for the risk is obtained which you take under the obligation. The premium received is the maximum profit that you can make from the trade. The maximum risk on selling a put option is when the stock price comes all the way down to zero. For hedginga position in the stock market, put options are used. They are less complex than short selling the market.
Trading options can be risky when you choose to start trading the nifty options. They offer a huge leverage that maximizes your profit percentage. On the other hand, in case the trade does not work in your support, then an option will increase the loss percentage too.
Appropriate risk management techniques and good knowledge is the essential key to trade and profit in the options market.