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Options strategies allow traders to profit from movements in the underlying assets based on market sentiment (i.e., bullish, bearish or neutral). A very straightforward strategy might simply be the buying or selling of a single option however, option strategies often refer to a combination of simultaneous buying and or selling of options. This is often done to gain exposure to a specific type of opportunity or risk while eliminating other risks as part of a trading strategy. Opposite to that are Put options, simply known as Puts, which give the buyer the right to sell a particular stock at the option's strike price. Call options, simply known as Calls, give the buyer a right to buy a particular stock at that option's strike price. Option strategies are the simultaneous, and often mixed, buying or selling of one or more options that differ in one or more of the options' variables.
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If the stock is $100 or something like that, there's no way you could exercise the option. And if the stock goes anything above %50, it's still worthless. You don't really doesn't have any value anymore. The value of the put option could start at $50, because you have the right to sell something worthless at $50, if the stock's going bankrupt After $50, it becomes the option. At $50 you wouldn't really care you have the right to sell something at $50, which you could buy for $50. So, the value of the option becomes less and less, as the value of the stock becomes more and more, up until you you get to $50. And anyone who's holding the option would make instant $40. If you had the option, you would excercise the option to sell it for $50, so you would make $40. If the underlying stock price is $10, then you could still go to buy the stock for $10. So you would definitely excerise it, and you'd make a lot of money the underlying stock can be bought for $0, the put option is now worth $50, because you can buy it for 0 and sell it for 50 dollars. What is the put option worth? You would now go on the market, buy it for almost $0, and then you would exercise your put option and then you would sell it for $50. At expiration the stock is trading at $0, the company went bankrupt. Remember, this is the right to sell the stock at $50. And the other one will actually draw a profit and loss based-on that option position, so incorporate the price you actually paid for the option. This is what you tend to see in academic settings like business schools or textbooks. We have company ABCD trading at $50 a share Let's draw a payoff diagram for a put option with a $50 strike price trading at $10 So once again we get to draw two types of payoff diagrams One type that only cares about the value of the option at expiration.