{"id":6609,"date":"2021-09-15T12:04:03","date_gmt":"2021-09-15T16:04:03","guid":{"rendered":"https:\/\/theministerofcapitalism.com\/blog\/?p=6609"},"modified":"2022-06-16T12:05:47","modified_gmt":"2022-06-16T19:05:47","slug":"what-is-a-put-in-stock-trading-2","status":"publish","type":"post","link":"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/","title":{"rendered":"What is a PUT in Stock Trading?"},"content":{"rendered":"

Ah, the age-old question when it comes to trading options, “What is a put in stock trading?”<\/em><\/p>\n

Well, amigo<\/em>, you’ve come to the right place to find your answer.<\/p>\n

But before we dive into it, let’s review a bit of a background when it comes to trading options in the stock market.<\/p>\n

Trading Options Basics<\/h2>\n

When it comes to trading in the stock market, there are a couple different routes you can take.<\/p>\n

The first is to buy or sell stocks.<\/p>\n

This is the most common and most widely recognized way of investing or trading in the stock market<\/a>.<\/p>\n

In order to do this, you just open up an account with your favorite online broker (like ours here<\/a>), deposit your money and then you can buy or sell stock.<\/p>\n

\"what<\/p>\n

Typically when you do this, you’ll be opening a margin account which means that you don’t have to put up exactly the same amount of money<\/a> – dollar for dollar – as the amount of stock that you want to buy.<\/p>\n

This allows you to buy more stock than just the cash you put into the account can buy on its own.<\/p>\n

So it’s adding a bit of leverage.<\/p>\n

Now, each broker has it’s own level of leverage they’ll extend to you in a margin account – so make sure you check that out before you open<\/a> the account.<\/p>\n

The next route you can take it to trade<\/a> options.<\/strong><\/p>\n

What is a Put in Stock Trading? The Extra Leverage You’ll Gain<\/h2>\n

Now the process of setting up an account is exactly the same as most brokers will let you buy options in a margin account.<\/p>\n

Sometimes they might need you to deposit a little more money<\/a> at the start in order to do that, but most brokers are pretty good about it.<\/p>\n

Once you’ve got that squared away, you will be able to buy options<\/a>!<\/p>\n

This means, that you can basically rent stocks for a certain amount of time.<\/p>\n

When you buy an option, you’re buying the right (but not the obligation) to buy the stock at a certain price<\/a> for a certain amount of time.<\/p>\n

This certain price is called the strike price and the certain amount of time is the amount of time between when the option is purchased and the expiration date.<\/p>\n

If you look at the picture below, you can see the expiration date as well as the PUT side of the window and the Strike price.<\/p>\n

\"trading<\/p>\n

The strike price is the price that you think the option will expire above or below on the expiration date.<\/h4>\n

If you were to buy the September 30 calls at the 178 strike, you’d essentially be saying<\/a> that you think the price of GLD would be at or above $178 on September 30.<\/p>\n

And if the price of GLD was above $178 you’d be “in the money”<\/em> and would make money.<\/p>\n

On the other hand, (and to answer your question, “What is a put in stock trading?<\/em>) a PUT is basically a bet that the price of a stock will be BELOW a certain value at a given date.<\/p>\n

So, if you thought the price of GLD was going to be below $173 on September 30, you could buy the $173 PUTS.<\/p>\n

Then if the price of GLD was below $173 on September 30, you’d be “in the money”<\/em> and would make money.<\/p>\n

But if the price of GLD was ABOVE $173 and you bought those puts, you’d lose all the money you used to buy those put options<\/a>.<\/p>\n

The same for the call side – if you bought the $178 calls and the price of GLD was BELOW $178 when the contracts expired on September 30, you’d lose as well.<\/p>\n

In it’s simplest form, that’s how it works.<\/p>\n

Now, you can also sell options but that’s more of an advanced strategy.<\/p>\n

But for now, these are some of the basics.<\/p>\n

How Much Do You Pay When Trading Options?<\/h2>\n

Now, one thing to keep in mind that the strike price is not the price that you pay for the options<\/a> you are going to buy.<\/p>\n

As mentioned before, the strike is the price you think the stock will be above or below on a certain date.<\/p>\n

The price that you pay for an option is the same as when you buy stocks – you buy somewhere between the Bid price and the Ask price (called the Bid\/Ask spread).<\/p>\n

So, getting back to our example (see the same picture below), if you wanted to buy those 178 calls, the price would be somewhere between $0.41 (Bid) and $0.44 (Ask). Generally if you put your bid<\/a> somewhere in the middle, your order will get filled.<\/p>\n

\"trading<\/p>\n

On the other hand, if you’re thinking, “No way, GLD’s gonna drop like a rock past $173!”<\/em>, you’d be looking at a price somewhere between $0.68 (Bid) and $0.71 (Ask).<\/p>\n

When buying options MOST of the time, 1 option contract controls 100 shares. (You’ll want to check and make sure before you start trading a stock<\/a> to see how many shares an option contract controls before you go crazy and start buying).<\/p>\n

So for simplicity’s sake, we’ll say that our trade<\/a> will get filled right in the middle.<\/p>\n

For the $178 calls, we’d pay $0.42 per option contract so the final cost would be $0.42 x 100 = $42 for one contract.<\/p>\n

If we went with the $173 puts, we’d pay $0.69 which ends up costing $69 for one contract.<\/p>\n

Now you can see that this gives you a LOT of leverage and bang for your buck if you’re wanting to control a large number of shares just for a certain amount of time.<\/p>\n

The Potential Payoff When Trading Call and Put Options<\/h2>\n

If you invested $1500 in GLD and just bought the stock, you’d get about 8 shares.<\/p>\n

If you used that $1500 to buy options because you thought the price would go above $178, you could control about 3571 shares.<\/p>\n

But remember, you don’t own those shares like you would if you had purchased them.<\/p>\n

You’re just renting them for a time and because of this, you are essentially choosing whether a stock will go higher or lower. (If you’re in the dark about this, I suggest you pick up a copy of Samuel Goldman’s book here to help you figure out exactly when a stock is ready to explode higher in value.<\/a>)<\/p>\n

And if the stock is below $178 at the time of the expiration date, you’d lose your entire $1500 investment.<\/p>\n

However, if GLD went up to $180 at the time of expiration your trade<\/a> would be worth about $5495. This means you’d be up about 365%!<\/p>\n

If you bought those $173 puts and the price of GLD dropped to say $169, and you purchased 22 contracts you’d make $7260 on the trade<\/a>.<\/p>\n

So you can see the power and leverage involved in trading<\/a> options.<\/p>\n

And that’s a big reason why I provide weekly option trade alerts for the members of “The Empirical Collective.”<\/em><\/p>\n

We’ve been enjoying some incredible profits and great returns this year.<\/p>\n

If you’d like a chance to join us, you can get more information by clicking this link.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Ah, the age-old question when it comes to trading options, “What is a put in stock trading?” Well, amigo, you’ve come to the right place to find your answer. But before we dive into it, let’s review a bit of a background when it comes to trading options in the stock market. Trading Options Basics […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[271],"tags":[273],"yoast_head":"\nWhat is a PUT in Stock Trading? - The Minister of Capitalism<\/title>\n<meta name=\"description\" content=\"Learn what a put is when it comes to trading options on your favorite stocks & how you can use it to make big money.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is a PUT in Stock Trading? - The Minister of Capitalism\" \/>\n<meta property=\"og:description\" content=\"Learn what a put is when it comes to trading options on your favorite stocks & how you can use it to make big money.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/\" \/>\n<meta property=\"og:site_name\" content=\"The Minister of Capitalism\" \/>\n<meta property=\"article:published_time\" content=\"2021-09-15T16:04:03+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-06-16T19:05:47+00:00\" \/>\n<meta property=\"og:image\" content=\"http:\/\/theministerofcapitalism.com\/blog\/wp-content\/uploads\/2020\/09\/what-is-a-put-in-stock-trading.jpg\" \/>\n<meta name=\"author\" content=\"Content Assistant\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Content Assistant\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/\"},\"author\":{\"name\":\"Content Assistant\",\"@id\":\"https:\/\/theministerofcapitalism.com\/blog\/#\/schema\/person\/a37b87f3fac5dab80851280d366cbe61\"},\"headline\":\"What is a PUT in Stock Trading?\",\"datePublished\":\"2021-09-15T16:04:03+00:00\",\"dateModified\":\"2022-06-16T19:05:47+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/\"},\"wordCount\":1162,\"publisher\":{\"@id\":\"https:\/\/theministerofcapitalism.com\/blog\/#organization\"},\"keywords\":[\"What is Options Trading\"],\"articleSection\":[\"Options Trading\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/\",\"url\":\"https:\/\/theministerofcapitalism.com\/blog\/what-is-a-put-in-stock-trading-2\/\",\"name\":\"What is a PUT in Stock Trading? 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