Put Options: Third Lesson

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EDUCATION ONLY

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A put option is the right, but not the obligation, to sell a security (stock, ETF or currency) at a certain price (strike price) on or before a certain date (expiration). One option allows the buyer one hundred shares of the underlying security.

Jay bought one $1.67 option of American Airlines at $12 strike price with a supposed four week expiration.

Case 1:

The American Airlines stock moves from $10.76 to $8 a share within the expiration date and Jay sells the option. He has a profit of $233 = 100 (12 – 8) – 167.

Case 2:

The American Airlines stock moves from $10.76 to $11 a share within the expiration date and Jay sells the option. He has a loss of $67 = 100 (12 – 11) – 167.

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