I used the following example:AAPL is trading at $440, and we believe that AAPL will not trade below $425 until expiration (18 more days). For a more detailed explanation please take a look at the previous blog post).We can limit our risk, if we BUY a $420 put option.
In our example you can sell it at $420.When SELLING a put option, you have to BUY the underlying stock at the strike price. I used the following example:AAPL is trading around $440 and we think that AAPL will move higher and trade at or above $480 at expiration date (in 18 days). AAPL) with the same expiration date, but different strike prices.When trading straddles, you think that the stock is about to move, but you don't know (yet) whether the stock prices will go up or down.
The cheaper the options, the lower the break-even point and the faster you'll be "in the money".That's why many charting software packages provide powerful "scanners". When I was trading options back in 1989, I analyzed all options of the 30 stocks in the Dax with my Casio calculator.
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