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Focus on Options: Fundamentals

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A put is the reverse of a call in that the value of the position rises as the price of the underlying security falls.

Here is the profit/loss graph for a long put.

At expiry the put is worth nothing if the security’s price is more than the strike price of the option but, as with the long call, the option buyer’s loss is limited to the premium paid.

The breakeven for this option is 99, so the put purchaser makes money if the underlying security is priced below 99 at expiry.

And here is the profit/loss graph for a short put.

Here profit is limited to the premium received for selling the right to sell at the strike price.

For every $1 fall in the price of the underlying security below the strike price the option falls in value by $1.

Here again, the breakeven point is 99.

     

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