Here, we’ll consider put options. An investor that buys put options benefits from this position when the price of the underlying asset is lower than the strike price of the option at expiry. The profit potential is generally capped, as most assets cannot have a value of less than 0 (though this is not always true). Conversely, if at expiry the price of the underlying asset is higher than the strike price, the option expires with no intrinsic value and the investor’s loss is equal to the option premium paid. The pay-off potential of the short put option position is the opposite of the buyer of the put option.
Put options
Options
What do long/short positions in put options mean? In the simplest terms, there are four positions an investor can take in options: buying call options (long call), selling/writing call options (short call), buying put options (long put), and selling/writing put options (short put).
What do long/short positions in put options mean?
Examples
Examples
- Long put option: an investor buys a put option on a share at a premium of €1.50, a strike price of €40 and the multiplier is 100. If at expiry the share price is above €40, then the option will expire with no intrinsic value and the investor’s loss will be equal to the €150 premium paid. However, if the price is below €40, then the option position earns a profit when the price moves beyond the break-even point at €40 – €1.50 = €38.50.
- Short put option: on the other side of the trade is the investor that has written the put option. If at expiry the share price is above €40, then the writer will earn a profit equal to the €150 premium received from the option buyer. However, if the price drops below the strike price, the writer of the call option will incur a loss when the share price crosses €38.50.
Schematically, the pay-off of a long and short put position looks like this:
Related articles
View all
Besides buying or selling single options, there are many other possible strategies that involve positions in multiple options simultaneously, as well as combining options with positions in the underlying assets.
Options pricing
Options
The Options Basics Explainer introduced the concepts of call and put options, strike price, expiry, and long or short positions in an option contract. This page looks in more detail at option pricing.
ETFs
Options
What is an ETF? An ETF – or exchange traded fund – is a fund formed by a basket of underlying instruments that can be traded on the exchange. ETFs are often (but not always) tracking an index and following the index methodology, providing investors a low-cost and efficient way to invest in an index without having to buy all the underlying constituents.
Options
Options
What are options? An option is a type of derivative contract that gives the holder the right to buy or sell the underlying asset at a predetermined price – the exercise or strike price – at or before a certain date. Options exist on a wide variety of underlying assets, like single stocks, indices, ETFs, bonds, currencies, commodities. These contracts can serve as tools to protect a portfolio against potential losses or to express an opinion about the direction of the market.
Option Greeks
Options
The Option Greeks are a collection of variables that measure the sensitivity of option prices to changes in underlying factors. Mathematically, they are derivatives of components of option pricing models. Each factor has a Greek letter assigned to it, hence the name ‘Greeks’.
The history of market making and Optiver
Market Making
This video below shares Optiver’s perspective on the purpose and impact of market making. Inspired by the origins of trading in 17th-century Amsterdam, it explains how market makers help create transparent and liquid financial markets by continuously providing buy and sell prices. By making it easier for investors to trade and for companies and governments to raise capital, Optiver plays a role in supporting efficient markets and contributing to economic growth. Since 1986, improving the market has remained at the core of Optiver’s mission.
