Class: Buying Puts
Reference Materials
- Options - Essential Concepts & Trading Strategies, edited by The Options Institute, McGraw-Hill 1999: pages 1-57
- Options For The Stock Investor, James B. Bittman, McGraw-Hill 1997: pages 1-57
"Buying Puts" (Options 203) introduces buying puts as a directional, decidedly bearish strategy. This course covers profit potential, maximum risk, primary benefits, and how the choice of a long put's strike price and expiration month can allow an investor to tailor both risk of loss and profit potential. At the conclusion of the chapters and prior to the final quiz the student should know and understand all the topics under the "What You Have Learned" tab.
Chapter 1 - Introduction
Introduces what a long put is, what some of the benefits are, and what the position looks like graphically. This chapter also explains how long puts can be components of more complex trades.
Chapter 2 - Strategy Overview
In this chapter the benefits of a long put position are explained including the use of long puts to circumvent the Up-Tick rule. Additional topics covered include the fixed profit potential, loss potential, break-even point, the effect of volatility change and the passage of time.
Chapter 3 - Strategy Specifics
This chapter takes a hypothetical put purchase and then comprehensively expands on each of the sub-topics of Chapter 2. This chapter explains why a put purchase is decidedly bearish and could be a rewarding position for downward stock movement.
Chapter 4 - Choices
This chapter explains how the choice of month and strike correlate to risk and reward. It also discusses how motivations lead us to risk vs. reward assumptions, which then lead us to corresponding months and strikes.
Chapter 5 - Alternatives
The alternatives of a long put position prior to expiration are explained.
Chapter 6 - Conclusion
This chapter ties together all the previously discussed concepts.
Chapter 7 - Review and Quiz
Review of what you have learned and final quiz.