Discussion in 'Options' started by ROTFLMAO, May 15, 2008.
on a stock i expect to go down, is buying the put the same as selling short a call?
No it is not. The maximum profit you can make when buying a put is the difference between the current stock price and Zero minus the premium you paid for the Put. However, when selling a Call, you're max. profit is limited to the premium collected.
Short calls and long puts are the yin and yang of short stock.
They give different risk/reward, but they are both bearish positions.
No. Let's say you buy at put on XYZ @50, and the put cost you $4.. The most you can make is 50 points (minus the $4 premium you paid) if the stock goes to zero. Your risk is limited to loss of the premium you paid for the put.
Let's say you sell a call on XYZ @ 50 and are paid $4 premium. The most you can make is to keep all of the $4 premium if the option expires worthless. However, your risk is theoretically unlimited if the stock skies.
Both buying a put and selling a call are a bet on downside action, but the potential risk and outcomes are very different.
I was confused by it so glad I asked. Thank U !
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