Can you guys explain how to buy puts? If i choose quantity of 100 lots, does that mean i want 10,000 shares?
Also, how do i execute the puts? If the put is $3 strike price, at a premium of 0.50 cents, does that mean i have to pay 100 x 0.50 = $50 dollars for 10,000 shorted shares?
Once the stock drops, and i want to close the put position, at that time the premium would sky rocket as i am in the money. Does that mean that i have to pay the difference in the premium since it has gone up? This part is what confuses me most.
I understand calls & puts in theory, but i don't have any real experience, thus i am a bit confused.
I don't know about lots, but if you buy one options contract at say $.50, you pay $50 for the equivalent of 100 shares. As you near the expiration date, your put value will fall, but it will also fall if the stock goes up or fall less/rise in value if the stock goes down. You can sell before the expiration date, but if you sell right before expiration you will exactly either lose all your money or make 100*the amount your contract is in the money.
my way of looking at it is: run up or no run up, the puts definately definately definately become cheaper based on time alone! so you are better to be patient and disciplined and wait for may 5,6,7,8 and buy some puts then :)
I guess today was a good day to buy puts--I did (but I'm playing ARNA to fail to get approval and go down). You just can't say whether the stock will drift up or down before the briefing documents are released (but note, the stock price will probably react to the briefing documents, usually released two days before the advisory committee meeting). Since the price spiked today for no apparent reason, it might drift back down to 2 or so before the meeting. Get puts now, while they're a little cheaper.
Time decay will play little if any role. Time decay works mainly on options where there is no particular event coming up. In this case, the puts and calls are priced based on expected volatility from a particular event, the advisory committee meeting. They won't get cheaper based on time decay.
In general, if I were long going into an advisory committee meeting, I would rather have calls than stock plus puts. But if you already have stock, particularly if it is now a long-term holding, then by all means buy some puts.
up moves will bring put prices down. also sideways moves will bring it down. how to buy puts? do you have options trading in your etrade account? if not, apply, and get that done! Im playing both sides, but i want to buy the 1 dollar puts for a nickel, if the puts come in the money they will be in the money by maybe 50 cents, so its important to get the lowest price you can, if you pay .10 you may think its cheap, but time decay will allow you to purchase for .05 if the price stays high and the date is near expiry (may 8). i would wait. i think this rallies into may 10 and then anyones guess is what shall happen. i think approval but i have no clue and as a trader im not supposed to know, im supposed to profit from what i think will happen, and what i think is volatility, and volatility means up or down, i want to make from the up move and break even from the down move