Put option strategy

Naked put option

• When investors are certain of the downward trend of stock prices in a certain period of time in the future, they can buy put options to obtain greater returns. The following describes the options for different time levels.

‍

• Day trading

• 1.Intraday traders make use of small-level fluctuations in stock prices to earn profits, and should choose options with high delta values; if the delta value is too low, stock price fluctuations cannot bring profit to day traders.
• 2. Usually short-term (1-2 week expiry date) in-the-money options have high delta values. When the delta value is higher than 0.6, it can respond quickly to small stock price fluctuations.

‍

• Short-term trading

• 1. When investors determine the trend of the underlying object in the short term (1-2 weeks), usually in this case, they will also choose the high delta option used by day traders, but the expiration date can be appropriately extended to reduce risk.

‍

• Midline trading

• 1. Extending the trading cycle, in mid-line trading, options with low delta values ​​should be used, that is, options with a longer expiration date. 
• 2. When Investors speculate that the stock price will fall sharply in a few weeks and months. At this time, buying at-the-money low-delta-value options can achieve better returns.

‍

• Long-term trading

• 1. Under normal circumstances, buying out-of-the-money options is risky, but when the time period is very long (greater than 9 months or more), you can consider options with slightly out-of-the-money value, in exchange for a lower premium
  

Sell ​​put

• When the investor holds the cash to buy 100 shares of a specific stock at the put option exercise price, he can sell the put option of the stock to obtain the premium
• The maximum profit is the premium for selling put options

‍

• Risk

• 1. When the stock price falls below the exercise price, it will be automatically exercised.
• 2. When the stock price continues to fall, selling call options will result in the assignment of stocks at a higher price than the current stock price.

‍

• For investors who want to buy a stock, selling put options to receive shares can appropriately reduce the cost of holding shares
• When the stock price drops significantly, the risk of selling put options is greater. Therefore, it is not recommended to participate in selling put options when the stock is in a sharp downward trend.
  

Bear spread option

• Two strategies for bear market spread options

• 1. Credit Spread: Buy a higher priced call option and sell a call option with the same expiration date at a lower exercise price. The maximum profit can be achieved when the stock price is lower than the exercise price of the low-priced option, and you can get the premium of the bear market spread.
• 2. Debit Spread: Buy a lower priced put option and sell a put option on the same expiration date at a higher exercise price. The maximum profit can be obtained when the stock price falls below the exercise price of the lower priced option. The maximum profit is the strike price difference between two options multiplied by 100 minus the premium paid to purchase this strategy.
  

‍