This video covers the basics of the long put spread. A long put spread involves the purchase of a put option on a particular underlying stock or index, while simultaneously selling another put option on the same underlying with the same expiration month, but with a lower strike price. Another name for this strategy is a bear put spread.
Fictitious Stock XYZ @ 100
Buy to Open 1 XYZ 30-day 100 Put
Right to Sell Stock at 100
Sell to Open 1 XYZ 30-day 95 Put
Obligation to Buy Stock at 95
Total Commission $6.25
At expiration (30 days from now)
Max Risk: Net debit paid, plus commissions
Max Profit: Limited to the difference between
strikes (100 – 95 = 5), less the net debit paid, minus commissions
The forecast for the above example is bearish on the underlying stock.
TradeKing Options Guy and Senior Option Analyst www.tradeking.com
Follow Brian on Twitter or visit TradeKing on Facebook and YouTube.
Options involve risk and are not suitable for all investors. For more information, please review the Characteristics and Risks of Standard Options brochure available at www.tradeking.com/ODD before you begin trading options. Options investors may lose the entire amount of their investment in a relatively short period of time.
Multiple leg options strategies involve additional risks and multiple commissions, and may result in complex tax treatments. Please consult a tax professional prior to implementing these strategies.
System response and access times may vary due to market conditions, system performance and other factors.
All investments involve risk, losses may exceed the principal invested, and the past performance does not guarantee future results or returns. TradeKing provides self-directed investors with discount brokerage services, and does not make recommendations or offer investment, financial, legal or tax advice. You alone are responsible for evaluating the merits and risks associated with the use of TradeKing’s systems, services or products. Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy.