Make Money At Home Buying Put Options

Buy Put Options And Make Money At Home

This article will explain the fundamentals of the put option buy transaction, in order for you to make money at home. This is a strategy that is employed when you believe that the underlying stock will decrease in value over a predefined period of time. As you read on, you’ll learn about a home business strategy that made me the money to invest and how to DOUBLE THAT MONEY within a year with a proven investment method; this is the same method that the rich and affluent upper-class has used to leverage their income in order to make more money.

The Concept Behind The Put Option Buy (To Open):

A put option is a contract between a buyer and seller, whereby the buyer is given the right, but not the obligation, to require that the seller buy a specified number of an underlying stock at a fixed price (strike price) on or before the expiration date (third Friday of every month). The put option buyer is hoping that the underlying stock price will DECREASE (below his strike price) prior to the expiration date, so that he could sell the put option and make a large premium (money) off the difference between the strike price and the lower market price; put option buyers are rewarded $1 for every $1 movement that the stock makes below the strike price! Given the low costs to buy put options (usually $1 to $3 / share), you can see how quickly your money could exponentially increase.

By the way, this also applies to call option buy orders, except, with call options you are hoping that the stock increases above your strike price prior to expiration. The following are key definitions that will help you understand the put option guidelines and make money at home:

Expiration Date: Options for the underlying stock are available for the current month, the month after, and every three (3) months; regardless of the month, all put options expire on the third Friday of the month in which you choose.

Time Value: With put options, you are paying for time, as you don’t own anything (i.e., stock). As such, put option prices are higher the more time you have. In all cases, you are hoping that the underlying stock’s price will decrease (below your strike price) within the available time. On the third Friday of your expiration month, your option will expire worthless if the stock price has not decreased below your strike price.

Contract Size: Put option contracts are bought (at the ask price) and sold (at the bid price) at sizes of 100 shares (i.e., one (1) option contract controls 100 shares of stock).

Option increments: Option strike prices are available in $2.50, $5, or $10 increments / share

Pricing structure: The price of the put option is based on the strike price, relative to the price of the underlying stock, and the length of time before expiration; the longer the time, the higher the price. The following is the pricing scheme for each of the available option contract categories:

In-the-money: An option whose strike price is higher than the market price of the underlying stock. This is the point at which you want to be prior to the expiration date, as you make $1 for every $1 decrease in the underlying stock; you will make money at home if you find yourself in this situation! As such, the price of options in this category is the highest, as the price of the underlying stock is already lower than the strike price.

At-the-money: An option whose strike price is equal to the current market price of the underlying stock. The price of options in this category is moderate as there is a lower probability that the price of the underlying stock will decrease below the strike price by the expiration date.

Out-of-the-money: An option whose strike price is lower than the market price of the underlying stock. The price of options in this category is the lowest as there is even a lower probability that the price of the underlying stock will decrease below the strike price by the expiration date. However, the potential to make a lot of money exists in this category and at-the-money strike prices due to the lower cost to buy-in and the potential to make $1 per each $1 reduction (below the strike price) in the underlying stock.

Now, let’s sequence this altogether in a mock put option transaction. Let’s say that it’s March and you purchase ten (10) contracts (controlling 1,000 shares of underlying stock) of a put option expiring in April (third Friday) for XYZ Company at an “out-of-the-money” strike price of $50 and an option price of $0.75 / share; the stock is trading at $52 / share. You pay $75 for each contract, which equates to $750 for 10 contracts ($0.75 X 10 contracts X 100 shares / contract). Prior to the expiration date, the stock dips $4 to $48 and you sell your put options at $2 ($2 in-the-money), thus making $2,000 and securing a profit of $1,250 ($2 X 10 contracts X 100 shares / contract minus the purchase price of contracts).

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or

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