Buying Put Options Explained - How to Trade Options

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What Is a Put?
A put is an options contract that gives the owner the right, but not the obligation, to sell a certain amount of the underlying asset, at a set price within a specific time. The buyer of a put option believes that the underlying stock will drop below the exercise price before the expiration date. The exercise price is the price that the underlying asset must reach for the put option contract to hold value.
A put can be contrasted with a call option, which gives the holder to buy the underlying at a specified price on or before expiration.
The Basics of Put Options
Puts are traded on various underlying assets, which can include stocks, currencies, commodities, and indexes. The buyer of a put option may sell, or exercise, the underlying asset at a specified strike price.
Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities, futures, and indexes. They are key to understanding when choosing whether to perform a straddle or a strangle.
The value of a put option appreciates as the price of the underlying stock depreciates relative to the strike price. On the flip side, the value of a put option decreases as the underlying stock increases. A put option's value also decreases as its expiration date approaches. Conversely, a put option loses its value as the underlying stock increases.
Because put options, when exercised, provide a short position in the underlying asset, they are used for hedging purposes or to speculate on downside price action. Investors often use put options in a risk-management strategy known as a protective put. This strategy is used as a form of investment insurance to ensure that losses in the underlying asset do not exceed a certain amount, namely the strike price.
In general, the value of a put option decreases as its time to expiration approaches due to time decay because the probability of the stock falling below the specified strike price decreases. When an option loses its time value, the intrinsic value is left over, which is equivalent to the difference between the strike price less the underlying stock price. If an option has intrinsic value, it is in the money (ITM).
Out of the money (OTM) and at the money (ATM) put options have no intrinsic value because there would be no benefit of exercising the option. Investors could short sell the stock at the current higher market price, rather than exercising an out of the money put option at an undesirable strike price.
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#OptionsTrading #BuyingOptions #PutOptions
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.
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[@JakeBroe]

Give this video a LIKE to support my channel! Also check out my entire playlist on Trading Options here! kzbin.info/aero/PLscTZuOqKWIxSZzy4ObKWDznEsCot_1HU

[@deviambati3805]

Hello Jake, I generally go for long calls. But it is good to learn PUT option for the bear market. I am becoming a follower due to your presentation skill in explaining in simplified way for a beginner. Thank you.

[@JakeBroe]

It's good to know and understand both directions to trade. Cheers Devi!

[@leejmuam1]

Keep it up Jake. I like your contents. Straight to the point and good examples. Unlike many other KZbinrs that talk 1/2 of the videos about their course or the stuff they are promoting.

[@JakeBroe]

Thanks Gyl! Yep, I'm just trying to make helpful content. I'm not trying to get anyone to take my course or buy anything. Just a thumbs up and comment is all I occasionally ask!

[@wilmic3477]

Simple to understand with good example. I enjoy watching your Options video! Great job!

[@Mustsphmus]

keep it up soldier. Your content is awesome. I have watched most of your videos. Your content is very informative and to the point. Unlike these other youtubers who always try to sell you something and give you incomplete info. Keep it up, you will get there bro.

[@atlantissmojo44505]

you explain things simply and get right to the point so thanks for that!!!

[@JakeBroe]

You are very welcome Lester! Cheers!

[@misaelarredondo7933]

This video is where puts clicked for me! And potential over time is literally the best definition of extrinsic value. That’s how I explain it to everyone hope you don’t mind Jake!

[@JakeBroe]

Thanks Misael! We might have use for buying puts very soon!

[@senyorty]

Say I did the contract and was right but i don’t want to buy 9k of stocks. Can I just sell the contract to another person for more than the $460 I spent?

[@fishin360]

i need someone to make a 5 minute video on "buying a put" without going all over the place.

[@OnlyUknow2]

Facts lmao

[@michaeldougherty7911]

Yes! Every time the bounce all over. Just run the numbers directly so we see the example. Not 70000 hypotheticals

[@jdibo]

Same here dude it really is confusing if you’re new

[@thomasjanowski178]

First found your channel for OTS content and now I’m here. Funny how life goes. Great content Jake thanks for the help. Aim high.

[@JakeBroe]

Thanks Thomas! Glad you found the channel. Best wishes!

[@MaritimeSunset]

Thank you, I am quite new to trading options and this video was so clear and concise. Great communication skills.

[@Foxyfreedom]

I don’t have $9000 to go out and buy 100 shares. I’m just going to trade the contracts and never exercise. The only exercising I do is at the gym

[@chikhongkuick7584]

oh dear, your explanation is so clear! Thanks Jake! (Your +1 follower from Singapore :)

[@bijyanalkeralam9127]

Thank you Broe

[@itsyagirlp5160]

Love your videos!

[@JakeBroe]

Thanks JJ! I appreciate the support!

[@HDBnB1]

Is there a general rule of thumb for choosing deltas for puts? I know for leaps they say picking a delta of at least .80 is safe. Does this apply to puts too?

[@kleetus88]

fantastic video, very clear and concise

[@Drizz1717]

Nice explanation. I'm still learning, so this is great

[@marianodemiguel3442]

Nice! I had a hard time wrapping my head around puts. Thanks

[@JakeBroe]

You are very welcome Mariano! Cheers!

[@SandpitCrew]

Great presentation, clear and easy to understand. Thank you! Where was your channel 3-4 months ago when I started to learn options? New Subscriber here.

[@JakeBroe]

Awesome! Welcome to the channel Tulip! Great to have you with us!

[@borntobemild-]

You are a man of many talents Jake.

[@bido8176]

Why would you go an buy the actual stocks before expiration? Just sell the option before PE so you don’t have to exercise.

[@Dman9377]

Whats an example of when you would buy 200 shares right on the day it expires.

[@jamescole3152]

Very good. But you should have said you don't really need to buy any stock, you can just sell the put option. That is actually the way it works. Another way to keep it simple is to say when you buy a call option - you are betting the price of the stock is going up. And when you buy a put option - you are betting the price of the stock is going down. The rest is just the details, which you explained very well.

[@1fighisimo]

Great info

[@tvs3497]

Good job explaining the Put option. Not all stocks are optionable but ones that aren't may be shortable.

[@JakeBroe]

Thanks Tv S! Glad you found the video informative!

[@MrBecker666]

All these guys make it hard for no reason

[@mariami9984]

Dog and pony show cant deal with...there must be a simple explanation

[@Bob-wm5pz]

Some say 2024 stocks UPST. MRNA. TDOC. ROKU . BBY. TGT. PARA. SQQQ are best buy and hold for entire year. 2024 with possibble huge gain.

[@neilldn74]

Question. if you buy a put option and the stock price goes below the strike price before the expiration date, do you have to sell the shares? For example, if I buy a put option with an expiration date of 1 year and after two weeks, the stock falls below the strike price, do I automatically lose the shares or can I hold onto them and see what happens to the stock price?

[@TheOriginalPickleRick]

How can I set a target sell price for a bought Put ? Thank you.

[@tukuss]

Jake, can you explain why does or doesn`t make sense to buy call or put ITM ? Thanks

[@Rio-by1eh]

I started watching your content because of Ukraine but you are a well informed all around educator ☀️✅💫🇺🇸🇺🇸

[@paulf9814]

Hi there, great video. I have been buying puts lately to offset huge losses in my accout. I understand if the option expires OTM I expires worthless and my loss is the premium paid. What happens if the option expires ITM? I do not want to exercise my right to sell the shares, does that mean I must sell the option before expiration?

[@vripiatbuzoi9188]

So how much time after the put contract expires, assuming it's still in the money, do you have to buy the shares and exercise the sale to the other party or does it happen automatically. Assuming you don't have the shares are they bought and sold automatically and the difference appears in your account?

[@Kdee105]

So say if I maxed out at 200 contracts as a buyer for puts and it falls below the strike price and I exercise my 200 contracts does the buyer pay my premium for the stocks ?

[@scorpionking9925]

What is the order limit? Also, when I share fall under $40 lest say at $30 during the week which I contract ends lets say on Friday, what should I do? Should I wait until Friday to sell or sell at that moment the share falls under $40? If I waited until the end of the contract vs in the middle of the contract, do I have to do it manually

[@einfussganger]

Pro Tip: If you're trading in an IRA (where you can't short stocks), you can achieve the same result/risk by buying two ITM puts on the stock. Each will have a delta of about .50, so together, they'll track pretty closely to the stock itself. Did this three times last week with the ridiculously overpriced IPO for RIVN and made between 30% and 50% each day.

[@andersonandrew112]

How do you tell if an IPO is over priced?

[@aramtas299]

Thank you sir. I'm planning to start buying put and call contracts, and your videos are great. I wonder is it possible to buy put or call contracts for ETFs and mutual funds?

[@JakeBroe]

Not for mutual funds, but you can for ETFs! SPY is State Street's S&P 500 ETF and has the most contracts being bought and sold on it. Very popular ETF to buy and sell options.

[@aramtas299]

@@JakeBroe Thank you so much!

[@alexvanhoven1774]

What happens when you have your put…and it expires. I haven’t done anything like that yet I just want to know what to do. Should I try to exercise it before it expires? Or is it once it expires I just have 100 shares worth the put price I bought it for to sell?

[@river_peak]

@5:50, If the price went down, why would they want to buy from you for 105 if market prices is 95?

[@kurtchen4452]

Thanks looking forward to see your selling buy and pot options . And can you explain more in detail on what if you don’t have the the 100 shay of xyz can I still still sell call or put contact

[@JakeBroe]

Hey Kurt! If you contract has value or is in the money, you can always sell it for its profit before the expiration date by "buying to close" or "selling to close". Most options traders never wait for the expiration date to take their profits.

[@alanyoung159]

@@JakeBroe as I'm watching through the options playlist and trying to learn this a bit more, I think this is where I lose track of everything. If a contract is 44 days out, "exercising" of the contract happens on day 44. But, as you mention, it doesnt sound like you need to wait till day 44. If you are in the money and profitable, you can decide to close the contract and take your profits before day 44 (say on day 20 or day 30). But, since closing the contract prior to day 44 would be profitable to one party, it would be unprofitable for the other, so who can decide to close the contract? If I am buying a Put Option (hoping the stock is down by day 44), and wanting to close the contract on day 20 since the stock is down a bit and I want to take the profits, wouldnt the other party object to this as maybe by day 44 the stock could go back up and they would instead be profitable?

[@JakeBroe]

@@alanyoung159 , Hey Alan! There is a big difference between "exercising" - which causes the exchange of 100 shares of stock, and then "buying to close" or "selling to close" your contract for a profit. You can buy back or sell off your option contract at anytime for a profit or loss. If a contract is exercised, then the Buying has all the power. The Buyer paid a premium for the contract and they have all the rights to do with it as they please. The Seller was paid the premium and they have to abide by the obligation of the contract.

[@alanyoung159]

@@JakeBroe Thanks for the response Jake! Much Appreciated for helping me understand more! So it sounds like the buyer of the Call Option or the buyer of the Put Option are the ones with the power to make the decision of when to take action... whether they want to let the option be exercised on day 44, or whether prior to day 44, they want to buy-to-close/sell-to-close for presumably a profit. Yeah, that was confusing me a bit so thanks for the clarification!

[@chocolatecoveredgummybears]

Damn you are one smart cookie

[@oneopinion8767]

Now I really didn’t know what I was doing but I bought a put on Robinhood that expires today for one penny. But it said my max loss was a dollar but my max profit was like 2000 something. It was for T strike price 20.5. Is that really the max I could lose there?

[@kjkgood]

Good work what the difference vs. "shorting "

[@jamescole3152]

None. Unless you want to get into futures. Well you could borrow a stock and sell it and buy it back at a later date.

[@scotthenderson4376]

So you have to buy the stock on the market to make a profit for buying puts but for buying calls you just need to be right in the direction (same for both) and then sell it when price moves up

[@jamescole3152]

No not really. You can just sell the put option too.

[@waltervidal3237]

When buying a Put (expiration in 60 days); if the price goes down, let’s say 15%, do I have to wait ‘till expiration day to excessive the option?

[@JakeBroe]

No Walter! You can sell to close it at anytime and take your profit.

[@leggoego]

Wish someone would do a video showing step by step how to do this like they were explainong it to a 5 year old

[@sandragonzalez4041]

this was great. can you make a video of Hedging with Puts?

[@jamescole3152]

No.

[@michaelelefano6430]

I know you tried but your all over the place man.

[@GilbertFleming]

Jake. Im experimenting with put credit spread. I chose to execute a vertical put on Schwab. It said both "Sell to Open" and "Buy to Open". I was expecting it to say "Buy to Close". Did I get something wrong?

[@JakeBroe]

Hey Gilbert! If you are opening a spread of any kind, then both legs will be "to Open". That is correct. Then if you want to close the spread, both legs will be "to Close".

[@frankcabrera734]

I LIKE THE FLAGS YOU HAVE IN THE BACKGROUND IN ALL YOUR VIDEOS

[@JakeBroe]

Thanks frank! I enjoy them and am glad you like them as well!

[@1krani]

So, if you don't have the money to buy 100 shares, can you still buy puts?

[@chalemi]

Maybe I missed it somewhere, but if I buy a put you say I need to go on the NYSE to buy shares to fulfil my contract. But when buying a put don't I have the right but not the obligation? I'm confused.

[@jamescole3152]

Forget buying shares. X that out. If the put is in the money then sell it before expiration date. That is how simple it is. Stop making it complicated.

[@Kebinnugget]

Would love to see a vid on crypto

[@JakeBroe]

I'll make one for sure in the next couple weeks! Cheers!

[@yozy4996]

This guy has the really great tools to teach from that makes it an easy POSSIBLE learning session, ( respectfully) unfortunately his teaching skills are poor.... This is a situation I see time and time again.... The difference between a piss poor teacher and a good teacher is , The unskilled teach divulges the information to the student and expects for them to comprehend on his level or degree of understanding, vs the good teach that meets the student at ground zero walks their way up with the tutee to his or her understanding....In other words this lesson plan can be done differently making it intuitive..Thank you just same.

[@riosafado]

Do you buy option spreads for day trading? or just straight Calls or Puts?

[@JakeBroe]

You can do either! I do not day trade, just swing trade. And I would just sell straight calls or puts. I don't buy any crazy risky stocks where I feel like I would have to limit my loses with a credit or debit spread.

[@ComradeJetski]

Biff!

[@ThinkMoneyBenny]

I'm a simple man.. When I have 100 shares of a stock, I sell covered calls 🙂

[@JakeBroe]

For most stocks (that aren't Tesla), this is usually a good idea!

[@lebarre1000]

arent PUTS exercised during a Bear Market? wc is what we are experiencing today (may24,2022)

[@jasonjohnson8704]

So, if buying a put contract...you HAVE to have 100 shares? Is that correct?

[@OnlyUknow2]

No. Only if you sell put option. Because you need 100 shares to sell, Buying put option you have the right to buy 100 shares at said price or sell the contract. ...I believe this is right.

[@seanpiacente4635]

You don’t need to own any stocks to do put or call options

[@jamescole3152]

Exactly.

[@xkrimzonxrsps]

Ah bro starbucks is literally a cash cow

[@MT-rg4dm]

Why is it 100 shares why not less

[@AesopsRetreat]

I've been through several video's and I have YET to understand ANY of these people. They seem to start out ok but soon digress into other aspects that makes ZERO sense to the original thought.

[@jamesbtex58]

I troubleshot Supercomputers to component level for over 25 years so I'm not a dull tool, however all of the video explanations I have been seeing are going at much to fast of a pace for me to be able to absorb what you are saying. For the sake of us beginners that don't understand any of this PLEASE SLOW DOWN your presentations. The content of your presentation is the best of anyone I have seen so far, it's just being presented much too fast. I don't know, maybe I would do better if I could read this from a book. Are there any books that you are aware of that explains this kind of trading, so that I can grasp it?

[@jamescole3152]

OK here is how simple it really is. When you buy a call option - you are betting the price of the stock is going up. And when you buy a put option - you are betting the price of the stock is going down. It really is that simple. Now watch this video again for the details of intrinsic value and extrinsic value or time.

[@theresamorgavi9196]

I only sell put and sell call....buy options are too risky for my taste

[@jamescole3152]

Yeah except when the market goes crazy.

[@rami4791]

You say you have to buy the stocks to exercise the option you confused the hell out of me because all other videos says you don’t have to have the stocks you just sell the contract like what!??!

[@jamescole3152]

Correct. You don't need any stock.

[@webguyz1]

You look like you are from the Mountain West. I am also willing to bet that you attend a certain popular church there.

[@anas.9265]

Hard to understand. I wish you had step by step how to buy a put on charles shwab and nothing else. Because Charles shwab is hard to use for first time buyers of options and puts in this case. You should consider a separate video for step by step buys and sells and no other education in this video., that would have been so very helpful to me and I'm sure to thousands of other people that are new to trading options.

[@anas.9265]

The only thing you didnt explain and SHOW on how actually buy and sell on this platform step by step...pretty disappointing as I was searching through videos looking for the help and got none

[@SY-hr3ew]

@@anas.9265 He has uploaded several other videos showing exactly this. Please check out his Trading Options playlist, which he linked to in the description box of this video, to find them.

[@anas.9265]

@@SY-hr3ew then is a different story..ya this one just...maybe a wrong title

[@matthewsantillanes194]

"pandemic"

[@amdistant5547]

Too much waffle, stopped listening after 4 minutes.

[@2000heshe]

(knowing stuff, teaching stuff). everybody knows the difference.funny thing is, everybody in KZbin believes that they can teach , unfortunately . I learned some stuff form you. thanks

[@JakeBroe]

You are very welcome! Cheers!

[@GCCK]

Nice explanation and easy to understand, thanks for the video bro 🫡