• Home
  • Courses
    • NSE Academy Certified Courses
      • Capital Market Analytics
      • Certified Program on Intraday Trading Strategies
      • Advanced Technical Analysis
      • Advanced Options
      • Advanced Algo Trading
      • Advanced Fundamental Analysis
      • Advanced Risk Management
      • Algorithmic Trading & Computational Finance using Python & R
    • TC Courses
      • FSM 1.0
      • FSM 2.0
      • Mentorship Program
  • Learning Center
    • Financial Education
    • IPO Issues
    • Fundamental Analysis
    • Technical Corner
    • Options Corner
    • Risk Management
  • Screener
  • Emerging Leaders
  • Terminal
  • Subscribe
Have any question?
7718989954
info@tradingcampus.in
Seminar on live trading strategy (Seminar on live trading strategy (11th Feb 2023, 11 am)
Login
Trading CampusTrading Campus
  • Home
  • Courses
    • NSE Academy Certified Courses
      • Capital Market Analytics
      • Certified Program on Intraday Trading Strategies
      • Advanced Technical Analysis
      • Advanced Options
      • Advanced Algo Trading
      • Advanced Fundamental Analysis
      • Advanced Risk Management
      • Algorithmic Trading & Computational Finance using Python & R
    • TC Courses
      • FSM 1.0
      • FSM 2.0
      • Mentorship Program
  • Learning Center
    • Financial Education
    • IPO Issues
    • Fundamental Analysis
    • Technical Corner
    • Options Corner
    • Risk Management
  • Screener
  • Emerging Leaders
  • Terminal
  • Subscribe

Options Corner

  • Home
  • Blog
  • Options Corner
  • Long Put

Long Put

  • Posted by Trading Campus
  • Date May 13, 2017
  • Comments 94 comments

Underlying Strategy

Extremely Bearish

When a trader is completely bearish on the instrument, but wants to cap his downside risk. This Strategy gives unlimited profit on the downside and a limited loss on the upside.

Methodology

The trader buys a Put option of the strike price, assuming that the instrument shall expire at or below the strike price at the time of its expiry.

Risk Profile:

This is a low risky setup as the loss is limited.The risk-reward ratio is the best in these kind of strategies.

However the probability of successful trades is extremely less in  buying OTM options as most of these options expire worthless.

Margin requirements are low for this strategy.

Calculations:

Max Potential Profit: Strike Price-Cost of PE

When: The stock goes to zero.

Max Potential Loss: Net premium paid.

When: If stock expires at or above the strike price.

Breakeven at expiration: The strike price – Cost of the PE

Impact with passage of time

The PE price reduces with the passage of time, assuming the instrument price remains constant. Hence time decay works against this strategy.

Illustration 

Suppose the trader is extremely bearish on TataMotors and expects that TataMotor’s stock price would fall in the next few weeks..

In order to capture the move, he has two options. He can take a short position in TataMotors futures or he can buy a put option.Since taking positions in futures require significantly higher margin than buying  options and also has a risk of unlimited losses, the trader decides to buy a PE. In this case his risk is limited as he will only pay the premium for the put option, and he will have unlimited profits if the position goes in his favor.

TataMotors is currently trading at 453. The trader decides to buy 1 lot PE of strike price 430 of near month expiry, paying a premium of Rs. 3.5

Hence the breakeven price for this strategy shall be Rs.( 430-3.5=426.5). Note that the PE shall itself be profitable after the price crosses 430 at the time of expiry, but as the trader has already paid Rs. 3.5 for the option, it needs to recover that cost in order for the strategy to turn up a profit.

Now let us consider different scenarios at the time of expiry.

Stock closes at Rs.440.

Loss= (Net premium paid)*Lot Size

Value of the PE shall be 0

Hence Loss=3.5*1500

=Rs.5250

Stock Closes at Rs. 415

Profit=(Strike Price-Expiry Price-Net premium paid)*Lot Size

= (430-415-3.5)*1500

=(Rs.17500)

Stock closes at Rs. 400

Profit=(Strike Price-Expiry Price-Net premium paid)*Lot Size

= (430-400-3.5)*1500

=Rs.(39750)

Thus, unlimited profit at a risk of Rs. 5250 !!

Value of Spot at expiry Lot Size Strike Price Net premium paid Value of Option P/L Net P/L*LOT SIZE
340 1500 430 3.5 90 86.5 129750
350 1500 430 3.5 80 76.5 114750
360 1500 430 3.5 70 66.5 99750
370 1500 430 3.5 60 56.5 84750
380 1500 430 3.5 50 46.5 69750
390 1500 430 3.5 40 36.5 54750
400 1500 430 3.5 30 26.5 39750
410 1500 430 3.5 20 16.5 24750
420 1500 430 3.5 10 6.5 9750
430 1500 430 3.5 0 -3.5 -5250
440 1500 430 3.5 0 -3.5 -5250
450 1500 430 3.5 0 -3.5 -5250
460 1500 430 3.5 0 -3.5 -5250
470 1500 430 3.5 0 -3.5 -5250
480 1500 430 3.5 0 -3.5 -5250
490 1500 430 3.5 0 -3.5 -5250
500 1500 430 3.5 0 -3.5 -5250
  • Share:
author avatar
Trading Campus
We provide courses in Share Market Training certified by NSE Academy. Get Adequate knowledge through our classroom courses.

Previous post

Call Option
May 13, 2017

Next post

Short Call
May 17, 2017

You may also like

Arithmetic Operators
12 May, 2021

There are around 7 arithmetic operators available in python. These are called as binary operators because they act on two operators. a = 13, b = 5 Operator Meaning Example …

Operators in Python
11 May, 2021

An operator is a symbol that performs an operation. Some examples of operations are addition, subtraction, multiplication etc. a + b is an operation where a,b are operands and ‘+’ …

Bear Call Spread
23 December, 2020

Bear call spread is an option strategy used by traders to cap their maximum loss. At first, a trader is bearish with the downside capped, so he initiates a sell …

    94 Comments

emerging leader

  • Basics of Python
  • Emerging Leaders
  • Financial Education
  • Fundamental Analysis
  • Investment Ideas
  • IPO Issues
  • Nifty 50
  • Options Corner
  • Risk Management
  • Technical Corner
  • Uncategorized

Past Batches

December 2018 – Completed

March 2019 – Completed

July 2019 – Completed

November 2019 – Completed

January  2020 – Running

Get Updates

Subscribe to our mailing list and get learning stuff and updates to your email inbox
Loading

Accordions

Company Summary

Bajaj Electricals Limited is engaged in engineering and projects; power distribution, illumination and consumer durables businesses.

It has a range of domestic and kitchen appliances comprising water heaters, room heaters, coolers, irons, mixers, induction cookers, toasters, kettles, microwave, rice cookers, gas stoves, non-electrical kitchen aids and pressure cookers.

It offers ceiling, table, pedestal, wall, fresh air and industrial fans, and lighting solutions, such as light sources, light emitting diode-based lighting products, domestic luminaires, torches and lanterns.

Key Highlights of Company Business

Segments and Products

The Company's business segments consist of

  1. Lighting;
  2. Consumer Durables;
  3. Engineering & Projects,

The Lighting segment includes lamps, tubes and luminaries.

The Consumer Durables segment includes appliances and fans.

The Engineering & Projects segment includes transmission line towers, telecommunications towers, highmast, poles and special projects.

The Others segment includes diecasting and wind energy.

Financial Performance

Financial Ratios

Trading Campus

7718989954

info@tradingcampus.in

Company

  • About Us
  • Gallery
  • Team
  • Contact Us
  • Careers

Courses

  • Technical Analysis
  • Algo Trading
  • Options
  • Fundamental Analysis
  • Risk Management
  • Algo Trading using Python

Support

  • Learning Center
  • Forum
  • Login
  • Videos

Education WordPress Theme by ThimPress. Powered by WordPress.

Copyright © 2018 Trading Campus. All rights reserved.