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Options by Michael C Thomsett

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Chapter 5 Buying Puts: The Positive Side of Pessimism

Blessed is he who expects nothing, for he shall never be disappointed.

̶̶ Alexander Pope, letter, October 16, 1727

Do you believe the market is headed down? If so, puts could serve as a valuable weapon in your pessimistic market strategy.

Call buyers acquire the right to buy 100 shares of an underlying stock. In contrast, a put grants the buyer the opposite right: to sell 100 shares of an underlying stock. Upon exercise of a put, the buyer sells 100 shares at the fixed contract price, even if the stock’s current market value has fallen below that level.

If the underlying stock’s value goes down, the put’s value goes up. Buying puts, which can be done for several reasons, is an action you take ...

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