1. Bought Put Options
A Put option provides the BUYER with the right to Sell a
specific number of securities, for a specific price, for a set
period of time. No obligation is placed on the holder of the put
option; they have the right to any upside, while having the
protection in place.
- Insurance against the downside (if you are holding the
underlying shares), with a guaranteed exit/sale price for your
- Risk limited to the cost of the option premium
2. Sold Put Options:
A seller of an option is obligated to buy the stock if required
by the buyer at the agreed price and quantity up until expiry of
- Receive the premium income of the option.
- Leverage - gain exposure greater than the margin lodged as
- Can lodge stock as security.
- Possibly large losses on positions if the underlying company
falls substantially (including to $0).
- Daily margin requirements - these can be substantial.