[Cletus.D.Yokel]

Don’t “Puts” work a bit differently?

[LittleLinda]

Don’t “Puts” work a bit differently?
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You’re right, CDY. From Ivestopedia:

“Both short selling and buying put options are bearish strategies that become more profitable as the market drops.

Short selling involves the sale of a security not owned by the seller but borrowed and then sold in the market, to be bought back later, with potential for large losses if the market moves up.

Buying a put option gives the buyer the right to sell the underlying asset at a price stated in the option, with the maximum loss being the premium paid for the option.

Both short sales and put options have risk-reward profiles that may not make them suitable for novice investors.”

[thinden]

Don’t “Puts” work a bit differently?

xxxxxxxxxxxxx

yes

while short selling is a trade that sells the underlying security now at market price typically using shares borrowed from the broker dealer who charges the short seller interest on the borrowed shares

a PUT is basically a contract/agrreement to sell a shre of stock at a certain pre determined contract price at a certain specified date in the future

the broker charges a one time premium for executing the put contract based on relationship to actual market price + the time value until the contract expiration date.

this premium is the only cost the put buyer will experience

if the share price goes down below the pre determined “strike price” the put owner can sell his put contract on the open market at a price that may exceed the premium he paid for the option contract

if the market price goes up or stays the same, the put contract may become worth less money that original purchase price & may even expire worthless.

the only loss is the premium

the short sale has unlimited risk that covering the shares borrowed for the short sale if the share price has gone up in market value from the original sale price of the security

the market price for covering short sale borrowed securities will rotate up until they find a willing seller at the market price (aka: short squeeze)