where to trade options
put options as well as many other types of options are traded through brokerages some brokers have specialized features and benefits for options traders for those who have an interest in options trading there are many brokers that specialize in options trading it s important to identify a broker that is a good match for your investment needs alternatives to exercising a put optionthe buyer of a put option does not need to hold an option until expiration as the underlying stock price moves the premium of the option will change to reflect the recent underlying price movements the option buyer can sell their option and either minimize loss or realize a profit depending on how the price of the option has changed since they bought it similarly the option writer can do the same thing if the underlying price is above the strike price they may do nothing this is because the option may expire at no value and this allows them to keep the whole premium but if the underlying price is approaching or dropping below the strike price then to avoid a big loss the option writer may simply buy the option back which gets them out of the position the profit or loss is the difference between the premium collected and the premium paid to get out of the position example of a put optionassume an investor buys one put option on the spdr s p 500 etf spy which was trading at 445 january 2022 with a strike price of 425 expiring in one month for this option they paid a premium of 2 80 or 280 2 80 100 shares or units if units of spy fall to 415 prior to expiration the 425 put will be in the money and will trade at a minimum of 10 which is the put option s intrinsic value i e 425 415 the exact price for the put would depend on a number of factors the most important of which is the time remaining to expiration assume that the 425 put is trading at 10 50 since the put option is now in the money the investor has to decide whether to a exercise the option which would confer the right to sell 100 shares of spy at the strike price of 425 or b sell the put option and pocket the profit we consider two cases i the investor already holds 100 units of spy and ii the investor does not hold any spy units the calculations below ignore commission costs to keep things simple let s say the investor exercises the put option if the investor already holds 100 units of spy assume they were purchased at 400 in their portfolio and the put was bought to hedge downside risk i e it was a protective put then the investor s broker would sell the 100 spy shares at the strike price of 425 the net profit on this trade can be calculated as spy sell price spy purchase price put purchase price number of shares or unitsprofit 425 400 2 80 100 2 220