A long position in a security, such as a stock or a bond, or equivalently to be long in a security, means the holder of the position owns the security and will profit if the price of the security goes up. An investor goes long on the underlying instrument by buying call options or writing put options on it.
Now come to the meaning of "writing put options" in the quote. If interpreting "write" as "sell", "writing put options" means selling the put option. But it is the buyer of a put option not the seller who has the right to choose whether to trade the underlying instrument in the future, and therefore the seller cannot be benefited from the price of the underlying instrument increasing.
So I wonder if "writing put options" means selling the put options or selling the underlying instruments? It is called that because options writers are creating i. No such thing as "reading" an option. This is what the Puts look like, note the expiration.
The rest is hypothetical, I am not advising this. Simply put er no pun intended , "writing put options" means you are selling somebody else the right a contract to sell YOU a specific stock at a specific price before a specific date.
I imagine the word "write" to refer to the physical act of creating a contract. By "writing a put", you are agreeing to purchase the stock at a particular price the STRIKE price before the expiration.
You get paid a fee, the " premium ", for agreeing to purchase the stock at the strike price if asked to. If the holder of the contract decides to make you buy the stock at the strike price, you have to do it.
If the stock never dips below the strike price, then the holder of the put contract a contract you wrote , will never exercise their right because they'd lose money. But if the stock drops to zero, you could potentially lose up to your strike price times the number of shares at stake , if the holder of the contract decides to exercise. Therefore, "writing puts" is a LONG position, meaning you stand to gain if the stock goes up.
Writing options means "selling" options and "put" options are contracts to sell a defined security the underlying , at a specific date expiration date and at a specific price strike price. So, writing put options simply mean selling to others contracts to sell. Your profit is limited to the premium but your loss may be unlimited in a falling market. Suppose you're writing a put with a strike price of Say the share's underlying asset price goes down to So the holder of the put will exercise the option.
Ie he has a 'right to sell' a share worth 70 for rs Whereas a put option writer has an 'obligation to buy' at rs 80 a share trading at rs Always think from the perspective of the holder. If the holder exercises the option, the writer will suffer a loss. Maximum loss he suffers will be the break even FSP, which is Strike price reduced by the premium paid.. If he doesn't exercise the option the writer will make a profit, which can maximum be the put premium received.
I wonder if "write" means "sell" and "read" means "buy"? Karl Katzke 1 7. Tim 2, 11 41 Edited as you requested. I don't see the word "read" anywhere, other than where you've quoted it. To what are you referring instead? Rea Sep 26 '11 at 0: I am just inferring from "write". Ah, I follow how you got there now. Tal Fishman 2, 8 But as the seller i. Long in economic terms, not necessarily in terms of the physical.
What do you mean by long in economic terms and long in terms of the physical? Stephane Kouakou 2. In the last sentence: The market price cannot fall below zero. When it drops to zero, the loss of the seller of the put option is the biggest, equal to the underlying value at the striking price minus the premium. Sign up or log in Sign up using Google. Sign up using Facebook. Sign up using Email and Password. Post as a guest Name.More...