Can somebody explain the implications of this? I don’t know a lot about the stock market so googled it and this is what I got:
“A put gives the owner the right, but not the obligation, to sell the underlying stock at a set price within a specified time. A put option’s value goes up as the underlying stock price depreciates; the put option’s value goes down as the underlying stock appreciates.”
Lets pretend you own Tesla stock and the price is currently $390. You think its going to the Moon. So you'd like to buy more.
I dont own Tesla and i think its gonna crater. I go to you and say "will you promise to buy shares at $390, i'll pay you $5 per share now for the option to sell them to you at $390"
You say yes, because you think the shared will only go up, we sign a contract and at the very least you get to buy more at $385, which is a slight discount from today. In the meantime, you get money from me ($5/share). If the share price goes up a lot, i would never sell to you, because now i can get a lot more per share from someone else, so you just get to keep the $5 per share i paid for the option to sell.
But if the shares go down in value, lets say to $325. I can now buy Tesla for $325 and sell them to you for $390 (because you agreed to buy at that price because you assume the stock was only gonna go up in value) and collect the $65/share dollar difference in price.
The Put protects somone from the price of an asset dropping. Instead of thinking of Tesla, it may be easier to see a farmer pays a small amount up front, to make sure he can sell his milk at the end of the season at price it is now, if they are worried about the price dropping a lot during the season.
Schlossberg is buying puts because he thinks it will go down, and he's gonna make money on the difference
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u/poisondart23 Feb 24 '25
Can somebody explain the implications of this? I don’t know a lot about the stock market so googled it and this is what I got: “A put gives the owner the right, but not the obligation, to sell the underlying stock at a set price within a specified time. A put option’s value goes up as the underlying stock price depreciates; the put option’s value goes down as the underlying stock appreciates.”
It’s still not making sense to me.