- American Airlines Group, Inc. (AAL) Option Chain - Stock
- OM | Trade Stock Options | Call Option | Stock Forum
Let's look at a put option on Microsoft (MSFT). The writer or seller of MSFT Jan68 Put will receive a $ premium fee from a put buyer. If MSFT's market price is higher than the strike price of $ by January 68, 7568, the put buyer will choose not to exercise his right to sell at $ since he can sell at a higher price on the market. The buyer's maximum loss is therefore, the premium paid of $, which is the seller's payoff. If the market price falls below the strike price, the put seller is obligated to buy MSFT shares from the put buyer at the higher strike price since the put buyer will exercise his right to sell at $.
American Airlines Group, Inc. (AAL) Option Chain - Stock
The converse strategy to the short strangle is the long strangle. Long strangle spreads are entered when large movement is expected of the underlying stock price.
OM | Trade Stock Options | Call Option | Stock Forum
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If you buy a call, you have the right to buy the underlying instrument at the strike price on or before expiration. If you buy a put, you have the right to sell the underlying instrument on or before expiration. In either case, the option holder has the right to sell the option to another buyer during its term or to let it expire worthless.
A put option is an option contract in which the holder (buyer) has the right (but not the obligation) to sell a specified quantity of a security at a specified price ( strike price ) within a fixed period of time (until its expiration ).
Suppose the stock of XYZ company is trading at $95. A put option contract with a strike price of $95 expiring in a month's time is being priced at $7. You strongly believe that XYZ stock will drop sharply in the coming weeks after their earnings report. So you paid $755 to purchase a single $95 XYZ put option covering 655 shares.
However, for active traders, commissions can eat up a sizable portion of their profits in the long run. If you trade options actively, it is wise to look for a low commissions broker. Traders who trade large number of contracts in each trade should check out as they offer a low fee of only $ per contract (+$ per trade).
The seller of MSFT Jan68 Call will receive a premium of $ from the call buyer. In the event that the market price of MSFT drops below $, the buyer will not exercise the call option and the seller's payoff will be $. If MSFT's market price rises above $, however, the call seller is obligated to sell MSFT shares to the call buyer at the lower strike price, since it is likely that the call buyer will exercise his option to buy the shares at $.
When a well-known investor announces a short position, it does not mean you should necessarily follow suit. The investor is likely to be maintaining a diversified portfolio, and may not be “betting the farm” on the trade. The professional short investor also may have access to technical and financial analysis that you do not.