Investment returns will fluctuate and are subject to market volatility, so that an investor's shares, when redeemed or sold, may be worth more or less than their original cost. When an option loses its time value, the intrinsic value is left over, which lut equivalent to the difference between the strike price less the stock price. If your end up with a net capital loss, you have a tax deduction. Put options are most commonly used in the stock market to protect against the decline of the price of a stock below a specified price. Your capital gain or loss is short term by definition. Learn how this simple options contract can work for you, even when your stock isn't.




A put option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call optionwhich gives the holder the right to buy shares BREAKING DOWN 'Put Option'. A put option becomes more valuable as the price of the underlying stock depreciates relative to the strike price.

Conversely, a put option loses its value as the underlying stock increases and the time to expiration approaches. The value of a put option decreases 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 stock price.

Out-of-the-money and at-the-money put options have an intrinsic value of zero because there would be no benefit of exercising the option. Investors could sell short the stock at the current market price, rather than exercising an out-of-the-money put option at an undesirable strike price, which would produce losses. Note that the maximum amount of potential profit in this example ignores the premium paid to obtain the put option.

Contrary to a long put option, a short put option obligates an investor to put stock options losses delivery, or purchase shares, of the underlying stock. Term Of The Day A regulation implemented on Jan. Tour Legendary Investor Jack Bogle's Office. Louise Yamada on Evolution of Technical Analysis. Financial Advisors Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education.




Placing Stop-Loss Orders for Stocks


In finance, a put or put option is a stock market device which gives the owner of a put the right, but not the obligation, to sell an asset (the underlying), at a. What are put options? How to trade them for profits? Learn everything about put options and how put option trading works. Tax Ramifications in Trading Options. the net cost of the put reduces the gain on stock when the put is the wash sale rule may be applied against current losses.