Buy put options online
There are a number of options strategies which traders can use to help improve the performance of their portfolio. There are also many options strategies which can help traders limit their risks and take advantage of market opportunities. Take control of your future with a Self-Managed Super Fund stockbroking account. Options come in two forms: Alternatively, a put option is where the buyer acquires the right to sell at a specific price.
View more information on options accounts and forms. There are several advantages to options trading. Exchange Traded Options ETOs allow investors to diversify and grow their investment portfolios, and can also protect them from market fluctuations. Some strategies may only appear more complex because they are built from multiple options.
However, you should make sure you are aware of how option prices are affected by volatility and other factors, as well as by movements in the underlying share price. Some strategy examples include iron condor, covered call, protective put and protective collar.
You can fund your options trading using cash in a CMC Markets Cash Account , or a margin loan from selected margin lending providers, such as Leveraged. With a margin loan you can leverage your portfolio to increase your investment opportunities.
Our stockbroking platforms combine innovative trading tools with intuitive interfaces and advanced charting packages.
See also Horizontal spread. Call option - An option contract that gives the owner the right but not the obligation to buy the underlying security at a specified price its strike price for a certain, fixed period until its expiration.
For the writer of a call option, the contract represents an obligation to sell the underlying product if the option is assigned.
Cash settlement amount - The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised. See also Exercise settlement amount. A selling transaction closes an existing long option position.
A purchase transaction closes an existing short option position. This transaction reduces the open interest for the specific option involved. Closing price - The final price of a security at which a transaction was made. See also Settlement price. Collar - A protective strategy in which a written call and a long put are taken against a previously owned long stock position.
The options typically have different strike prices put strike lower than call strike. Expiration months may or may not be the same. The investor may also use the reverse a long call combined with a written put if he has previously established a short stock position in XYZ Corporation.
Collateral - Securities against which loans are made. If the value of the securities relative to the loan declines to an unacceptable level, this triggers a margin call.
As such, the investor is asked to post additional collateral or the securities are sold to repay the loan. Combination - An arrangement of options involving two long, two short, or one long and one short positions.
The positions can have different strikes or expiration months. The term combination varies by investor. Condor spread - A strategy involving four strike prices with both limited risk and limited profit potential. Establish a long call condor spread by buying one call at the lowest strike, writing one call at the second strike, writing another call at the third strike, and buying one call at the fourth highest strike.
This spread is also referred to as a flat-top butterfly. Contingency order - An order to execute a transaction in one security that depends on the price of another security. Contract size - The amount of the underlying asset covered by the option contract. This is shares for 1 equity option unless adjusted for a special event.
Conversion - An investment strategy in which a long put and a short call with the same strike price and expiration combine with long stock to lock in a nearly riskless profit. The process of executing these three-sided trades is sometimes called conversion arbitrage. Cover - To close out an open position. This term most often describes the purchase of an option or stock to close out an existing short position for either a profit or loss.
See also Buy-write and Overwrite. Covered combination - A strategy in which one call and one put with the same expiration, but different strike prices, are written against each shares of the underlying stock.
In actuality, this is not a fully covered strategy because assignment on the short put requires purchase of additional stock. Covered option - An open short option position completely offset by a corresponding stock or option position. A covered call could be offset by long stock or a long call, while a covered put could be offset by a long put or a short stock position. This insures that if the owner of the option exercises, the writer of the option will not have a problem fulfilling the delivery requirements.
See also Uncovered call option writing and Uncovered put option writing. Covered straddle - An option strategy in which one call and one put with the same strike price and expiration are written against each shares of the underlying stock.
Credit - Money received in an account either from a deposit or from a transaction that results in increasing the account's cash balance. Credit spread - A spread strategy that increases the account's cash balance when established.
A bull spread with puts and a bear spread with calls are examples of credit spreads. Curvature - A measure of the rate of change in an option's Delta for a one-unit change in the price of the underlying stock.
Cycle - The expiration dates applicable to the different series of options. Traditionally, there were three cycles: For example, on January 1, a stock in the January cycle will be trading options expiring in these months: January, February, April and July. Day order - A type of option order that instructs the broker to cancel any unfilled portion of the order at the close of trading on the day the order was first entered.
Day trade - A position stock or option that is opened and closed on the same day. Day Trade Buying Power Debit - Money paid out from an account from either a withdrawal or a transaction that results in decreasing the cash balance. Debit spread - A spread strategy that decreases the account's cash balance when established. A bull spread with calls and a bear spread with puts are examples of debit spreads.
Decay - A term used to describe how the theoretical value of an option erodes or declines with the passage of time. Time decay is specifically quantified by Theta. Delivery - The process of meeting the terms of a written option contract when notification of assignment has been received.
In the case of a short equity call, the writer must deliver stock and in return receives cash for the stock sold. In the case of a short equity put, the writer pays cash and in return receives the stock. Delta - A measure of the rate of change in an option's theoretical value for a one-unit change in the price of the underlying stock. Diagonal spread - A strategy involving the simultaneous purchase and writing of two options of the same type that have different strike prices and different expiration dates.
Discount - An adjective used to describe an option that is trading at a price less than its intrinsic value i. Discretion - Freedom given by an investor to his or her account executive to use judgment regarding the execution of an order.
Discretion can be limited, as in the case of a limit order that gives the floor broker price flexibility beyond the stated limit price to use his or her judgment in executing the order. Discretion can also be unlimited, as in the case of a market-not-held order. Early exercise - A feature of American-style options that allows the owner to exercise an option at any time prior to expiration. The investor keeps this amount after all positions are closed and all margin loans paid off.
Equity option - An option on shares of an individual common stock or exchange traded fund. Equivalent strategy - A strategy that has the same risk-reward profile as another strategy. For example, a long May call vertical spread is equivalent to a short May put vertical spread.
See also Synthetic position. European-style option - An option that can be exercised only during a specified period just prior to expiration. See also American-style option. On the ex-dividend date, the previous day's closing price is reduced by the amount of the dividend because purchasers of the stock on the ex-dividend date will not receive the dividend payment.
This date is sometimes referred to simply as the ex-date, and can apply to other situations e. If you purchase a stock on the ex-date for a split or distribution, you are not entitled to the split stock or that distribution. However, the opening price for the stock will have been reduced by an appropriate amount, as on the ex-dividend date. Weekly financial publications, such as Barron's, often include a stock's upcoming ex-date as part of their stock tables.
Exchange traded funds ETFs - Exchange traded funds ETFs are index funds or trusts listed on an exchange and traded in a similar fashion as a single equity. Today, the number of ETFs that trade options continues to grow and diversify. Investors can buy or sell shares in the collective performance of an entire stock portfolio or a bond portfolio as a single security. Exchange traded funds allow investors to enjoy some of the more favorable features of stock trading, such as liquidity and ease of equity style, in an environment of more traditional index investing.
Exercise - To invoke the rights granted to the owner of an option contract. In the case of a call, the option owner buys the underlying stock. In the case of a put, the option owner sells the underlying stock. Exercise by exception processing - A procedure used by OCC as an operational convenience for clearing members. Under these proceedings, OCC assumes a clearing member tendered exercise notices for options that are in-the-money by threshold amounts, unless specifically instructed not to do so.
This procedure protects the owner from losing the intrinsic value of the option because of failure to exercise. Unless instructed not to do so, all expiring equity options held in customer accounts are exercised if they are in-the-money by a specified amount. Exercise price - The price that the owner of an option can purchase call or sell put the underlying stock.
Used interchangeably with strike or strike price. Exercise settlement amount - The difference between the exercise price of the option being exercised and the exercise settlement value of the index on the day the index option is exercised.
Expiration cycle - The expiration dates applicable to the different series of options. Expiration date - The date that an option and the right to exercise it cease to exist.
Expiration Friday - The last business day prior to the option's expiration date during which purchases and sales of options can be made.
For equity options, this is generally the third Friday of the expiration month. If the third Friday of the month is an exchange holiday, the last trading day is the Thursday immediately preceding the third Friday.
Expiration month - The month that the expiration date occurs. Fence - A protective strategy in which a written call and a long put are added to a previously owned long stock position, also referred to as a collar. The options may have the same strike price or different strike prices.
The expiration months may or may not be the same. An investor might also use the reverse a long call combined with a written put if he has previously established a short stock position in XYZ Corporation.
Fill-or-kill order FOK - A type of option order that requires that the order be executed completely or not at all. A fill-or-kill order is similar to an all-or-none AON order.
The difference is that if the order cannot be completely executed i. Floor trader - An exchange member on the trading floor who buys and sells for their own account. Fundamental analysis - A method of predicting stock prices based on the study of earnings, sales, dividends, and so on. Fungibility - Interchangeability resulting from standardization.
Options listed on national exchanges are fungible, while over-the-counter options generally are not. Gamma - A measure of the rate of change in an option's Delta for a one-unit change in the price of the underlying stock.
This is unlike a day order, which expires if not executed by the end of the trading day. If not executed, a GTC option order is automatically cancelled at the option's expiration. For example, an owner of common stock may buy a put option to hedge against a possible stock price decline.
Historic volatility - A measure of actual stock price changes over a specific period. See also Standard deviation. Holder - Any person who has made an opening purchase transaction, call or put, and has that position in a brokerage account.
Horizontal spread - An option strategy that generally involves the purchase of a farther-term option call or put and the writing of an equal number of nearer-term options of the same type and strike price. See also Calendar spread. Immediate-or-cancel order IOC - A type of option order that gives the trading crowd one opportunity to take the other side of the trade.
After announcement, the order is either partially or totally filled with any remaining balance immediately cancelled. Implied volatility - The volatility percentage that produces the best fit for all underlying option prices on that underlying stock.
It basically represents the potential for an options contract to deliver profit, and serves to compensate the writer of those contracts for the risk they are taking. At the point of exercising a contract, the contract effectively ceases to exist and so all extrinsic value is therefore lost.
If you own options contracts that are in the money meaning there is profit to be made through exercising , then the price of those options contact will be made up of both intrinsic value and extrinsic value. If you sell them on the exchanges you would therefore benefit from both the intrinsic value and the extrinsic value, whereas if you exercised them you would only benefit from the intrinsic value.
Although it's not always entirely that straightforward, the basic principle suggests that there's usually more money to be made from selling than there would be from exercising. If you do have options contracts that you wish to exercise then the process is actually relatively simple; all you have to do is instruct your broker to exercise them for you. If you are using an online broker, then it's usually a simple process of clicking a button in the trading platform.
Your broker will then take the necessary steps to exercise. If you are exercising a call option, then you will purchase the relevant amount of the related underlying security. You can then choose to either sell that underlying security or hold on to it. If you are exercising a put option, then you will sell the relevant amount of the related underlying security, assuming you own it.
If you don't own any of the underlying security, then you may have to buy it before exercising. You should be aware that only American style contracts can be exercised prior to the expiration date. If you own European style contracts, then you cannot exercise them until the expiration date, at which point they will usually be automatically exercised if they are in profit. Although the process for you to exercise is as simple as described above, there's actually a series of events that take place behind the scenes.
First, your broker would send an exercise notice to the relevant clearing house, depending on what options are being exercised and where.
An options clearing house has the responsibility for ensuring that all contracts are settled according to the relevant. Once the clearing organization receives the exercise notice, they then select a member firm that is short on the contract being exercised i. The selection process is usually random; any firm that's short on the relevant contracts can be chosen.
The firm that is selected is then responsible for fulfilling the terms of the contract; delivering the underlying security if it's a call option being exercised or paying for the underlying security if it's a put option.