Option Newbie Question:

Discussion in 'Options' started by ashantt, Jun 3, 2013.

  1. ashantt

    ashantt

    Hi,

    If I purchased this Put Option: 100 MAR 14, 85 PUTS, would I only make a profit if SPY went under $87.27 or also before that?



    thanks.
     
  2. If IV were to suddenly increase you'd make money if it sat still or even went the wrong way a little.
     
  3. You will make money if price decreases and/or volatility goes up. But that option will decay as time passes, albeit very little. If SPY does hit 85 by then, the world will be a very different place.
     
  4. ashantt

    ashantt

    Thank you for your responses. I did take the trade, my first option trade. Its a Black Swan event trade as any.

    When I put on the trade the Cost of Trade was $2500 and so was my maximum potential loss for the trade. Does this mean that if SPY does not go below $85 before March then I'm out $2500 and if SPY goes to $300 then my maximum loss will also remain at $2500?

    Attaching a pic of my position. Thanks.
     
  5. spd

    spd

    Yep, $2500 is your max loss on this.
     
  6. Yes, your loss is limited to the debit you paid. If SPY drops significantly before expiration your puts should theoretically increase in value. However, you need to take your theta decay into account. If you hold through expiration, and your puts are ITM, then you have the right, but not the obligation, to sell shares at $85.

    As an aside, if SPY does trade to $85 by March, I will happily buy those shares from you :)
     
  7. You bought 100 contracts as your first options trade without even understanding how the trade will make money??