Is Put Trading More Profitable Than Stock Trading?

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Put trading doesn’t cost as much per share as regular stock trading but can be far riskier if you don’t know what you’re doing. A put option is basically the opposite of a call option. When you trade puts, you’re trading contracts that offer the purchaser the right to sell an amount of stock at a specified price.

Those that write puts are wagering that the stock price will increase or remain relatively stable, thereby not giving the purchaser any reason to exercise the put. The writer makes money from the sale of the put and never has to buy any stock as long as the put option’s strike price is above the stock price when the option expires.

Although there is risk involved in put trading, sometimes puts are purchased as a means to protect profit and reduce loss. If you make a profit on a stock and want to make certain you keep that profit but aren’t ready to sell the stock, you might purchase a put. If the stock increases in price, you will not exercise the put. However, if it drops in price, the put guarantees that you’ll be able keep the profit you wished to protect by exercising your option to sell your stock to the contract writer for the put’s strike price.

A put can be sold for a profit when the price of the stock falls below the strike by an amount greater than the premium paid for the put before the option expires. The option to sell the owner’s stock holdings for the strike price of the option contract can be exercised if that is preferred.

Some use this information to trade puts profitably. They may never own the underlying stock but understand that the price of the put varies based on the stock’s price. Take a stock that costs $60 a share. You may purchase a put with a strike price of $59 for $2. You would make 100% profit on your investment if the price of the stock went to $55. Incontestably, there is risk involved. The purchaser loses his entire investment if the contract runs out and the stock’s price is still above the strike.

You’ll find puts and calls on other financial instruments. They aren’t just stock market instruments. Other markets, such as the commodities market and the forex market use puts and calls. Puts are used by farmers to protect the sale price of their crops. If they have a bumper crop, the odds are good that others will too. This causes the price of the crop per bushel to drop. To protect their profit, farmers will purchase a put contract so they have an automatic buyer at a specified price, making the put a valuable tool.

Regardless of the market, if prices increase and decrease, there are normally options such as puts and calls. Puts can be used to protect your profits or to increase your profits. Understanding put trading can be valuable knowledge indeed.

Options Trading Now has been Put trading for some time and is currently holding Qqqq puts and SPY puts.

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