Put Options Newbie Question- Before Taking Risk

S

Supermariotx

Hello,

I started trading stocks in 2006 while I was a senior in college and have been very successful so far. In saying this, I have absolutely zero experience in option trading. I started studying options 2-3 weeks ago, however, I'm still confused about the point below:

1. Can you lose money than your original investment in a put option? For example, if I purchased 10K worth of SPY 240 3/31 Puts, would I lose more than the initial investments?
 
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No. So long as you can afford to lose your bet, that's all you're gonna lose. (P.S.: It's not an investment....it's hedging or speculation.)
 
Supermariotx said:
Hello,

I started trading stocks in 2006 while I was a senior in college and have been very successful so far. In saying this, I have absolutely zero experience in option trading. I started studying options 2-3 weeks ago, however, I'm still confused about the point below:

1. Can you lose money than your original investment in a put option? For example, if I purchased 10K worth of SPY 240 3/31 Puts, would I lose more than the initial investments?
More...

You can lose only the premium you have paid. But if the trade is going against you, you may already know this, you can either hedge this position by selling another put or unwind the position quickly before rapid time decay kicks in.
 
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Long puts and long calls are debit transactions, period, no exotic anything.

If you're referring to "strategies" such as verticals, calendars, backspreads, butterflies, etc., well the op hasn't gotten that far in his studies and didn't ask.

Or have I been missing some exotic buy-to-open contract or scenario?

qwerty11 said:
Aside from some exotic scenario's, no
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Thanks for clarifying this. It seems a lot of money could be made in this case? Frankly, I'll risk loosing 10K in this instance since I strongly feel that market will continue to dip. I'm a business owner and lock-down will be detrimental to businesses and the overall economy.

Again, I'm not an option's trader but it appears to be a smart time to bet against the markets.
 
You could easily lose far more than the cost of the puts. But you'd have to be pretty careless for it to happen. Lets say your puts are (American style) "safely" OTM on expiration day and you go to Cancun or whatever. They aren't worth much so you decide not to close them out. Then the market drops big near the close. You have lots of puts and they go ITM at expiry, then with normal "auto-exercise" you will be short a load of stock. Since this will likely result in a margin call your broker will buy you in Monday at probably shitty prices. There could also be one of these big bounce days at the same time to really screw you.

Far fetched? Maybe, but I'm sure it has happened many times. Be careful! :)
 
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Option_Attack said:
Far fetched? Maybe, but
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biotech trader handbook, pelz.jpg
info generally useful beyond the industry too. gives some context to what the author is trying to capture... intra-library loan can have this in your hands before you can say rosanne rosannadanna. cheers
 
Crap, I hereby apologize to the op, @Option_Attack is spot on (and perhaps that's what @qwerty11 had in mind, so I apologize to him too). I should keep my mouth shut when talking about the basics, as I never keep trades until expiration. If I ever have, it would have been with cash-settled index options.

Option_Attack said:
You could easily lose far more than the cost of the puts. But you'd have to be pretty careless for it to happen. Lets say your puts are (American style) "safely" OTM on expiration day and you go to Cancun or whatever. They aren't worth much so you decide not to close them out. Then the market drops big near the close. You have lots of puts and they go ITM at expiry, then with normal "auto-exercise" you will be short a load of stock. Since this will likely result in a margin call your broker will buy you in Monday at probably shitty prices. There could also be one of these big bounce days at the same time to really screw you.

Far fetched? Maybe, but I'm sure it has happened many times. Be careful! :)
More...
 
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Option_Attack said:
You could easily lose far more than the cost of the puts. But you'd have to be pretty careless for it to happen. Lets say your puts are (American style) "safely" OTM on expiration day and you go to Cancun or whatever. They aren't worth much so you decide not to close them out. Then the market drops big near the close. You have lots of puts and they go ITM at expiry, then with normal "auto-exercise" you will be short a load of stock. Since this will likely result in a margin call your broker will buy you in Monday at probably shitty prices. There could also be one of these big bounce days at the same time to really screw you.

Far fetched? Maybe, but I'm sure it has happened many times. Be careful! :)
More...
 
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