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Track 'n Trade Futures End of Day Options

Selling a Put

Video Transcript

In this Track 'n Trade Pro options trading training video, I want to show you how to sell a Put option.

To sell a Put option, of course, we just simply click on the option Put order button. We drag our options Put order up and down on the screen, as it jumps between the different strike prices. We might want to choose to sell our Put option out here behind the market. You'll notice that this 215.00 Call is $168.75 in value. So we want to sell, let's go ahead and sell, maybe we want to sell a couple of these. Let's sell (2) 215.00 Puts at $168.75 each. In doing so, the following day, when that order is filled, we now have a closed profit in our account of $337.50. That's the value of our 2 Put options.

Notice, that those are coming against us already in this already first day. We filled our order at the opening of the day and then at the close of the day, it's against us, it's not in our favor. If we were to liquidate our options that we sold today we would be down or have a loss of $140.00. The idea of course, being that when we sell a Put option, we get to keep the value of the premium that we sell it for. So we sold these Put options at a value of $337.50 therefore, we have $337.50 of closed profit in our account.

We have an open profit of an open loss of $437.50, so therefore, we have an open profit vs. our loss of a -$140.00. Now, if we go ahead and increase or step this market forward, we'll notice the value of this option will increase and decrease as that underlying futures contract moves closer or further away from our strike price of $215.00. Now we're at $237.00, so we're increasing the options value is increasing which means that our profit is decreasing because we sold the Put.

As the profit as the value of that option increases, our profit decreases. As we move this market forward, and as it approaches closer and closer to our strike price, we lose more and more money. But as it goes away from us, now the options value is decreasing which means our profit is increasing. Again, remember that the maximum amount of money we can make by selling options is the amount of money we collect on the premium.

Remember: Our profit is limited, but our exposure or our risk is unlimited.

As this market jumps and goes away from our strike price, look, we have a nice great big jump in here. The market jumped further away from our strike price. The value of that option decreases, which is what we want. We want the value of that option to decrease to 0. At that point, we can liquidate our option, take our profits. You'll notice that as that market moves away from our strike price because we sold the put, then we have a $337.50 balance of what we paid for them. But our profit minus the $137.50 of what those options are valued at now, gives us a $160.00 profit. As we step that market forward, and we watch the different prices increase and decrease, now that option has- as the market starts to slow down, the value of that option increased again. Which is bad for us, causing us to lose money; we're now down $265.00. As that market is moving away from us, the value of that option increases or decreases, that's where our profits and losses come in.

So long as this option expires worthless, or goes all the way to for wishing, without going down into our strike that's where we would get to keep the entire amount of our options premium.

If we see a situation like this, where we feel like oh, you know what, I don't want to stay in this market any longer. I want to go ahead and take our profit of $185.00. We don't have to wait for the option to expire, we can always liquidate the option, and take our profits off of the table right now. Let's go ahead and simulate that.

Rather than waiting for the market to go all the way to the expiration, what you see is quite a ways away; still maybe 3 months. You don't want to wait 3 months to see if that market drops and comes all the way back down, to try to collect our entire premium. Let's just go ahead and liquidate our option and take our $185.00 profit right now.

The way we do that, of course, is we just put that right on the exact same strike price. The strike price of 250.00, rather than selling, we're going to buy. We're going to buy both of them back. Buy (2) options, 215.00., a value of $56.25, we're going to go, Okay. Step that market forward one day. We liquidated our options- we now have profit of $145.00.

That's how you sell a Put option in Track 'n Trade Pro.


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