When the stock price is falling most of the investors and traders grumble about how much money they are losing. The condition is very helpless and tough to take decisions. But in options trading, there is a way to profit from a downturn in the stock market.
Buying Put Option……
A put option gives its buyer the right, but not the obligation, to sell shares of a stock at a specified price on or before a given date. Buying put option is also known as option trading strategies for down trending stock.
For example, when you buy put option of strike price Rs 70 this will allow you to sell the stock at Rs 70 any time before expiry.
So when the stocks fall to Rs 60 your put option go up in value. Because you hold a contract that gives you the right to sell something for more than its market value.
- without having to own or short stocks you can participate in the downwards movement.
- Small risk, the maximum amount you can lose on a trade is the cost of put option.
- Using a small amount of money to make a large sum of money.
- Higher potential investment returns.
- Expiration date,
- The stock has to move downwards for to get the higher value of put option.