Track 'n Trade Futures End of Day

Buy a Put Options

Video Transcript

In this Track 'n Trade Pro Trading Tools Tips example, I want to highlight to you, how to buy a Put Option. Now, buying a Put Option gives you the right, but not the obligation to sell the underlying commodity at a specified price.

Now, the way we do that is we come in here and we click on our Put Tool. We click on the screen, and I'm still holding down the mouse button. As I drag it up and down on the screen, you'll notice that it jumps between different strike prices. Now, the strike price is the price in which we are able to exercise our Put Option or our right to sell one underlying corn contract at that specified price. So, put 235.00 is our strike price and the value of this is $93.75.

So, if we wanted to buy a Put at 240.00, a 240.00 Put, the value is $150.00. So, let's go ahead and Buy 1, 240.00 Put, at $150. We're going to release our mouse button. It says our commodity is Corn 2001 Dec., Monday, March 12th 2001. We're going to Buy 1, 240.00, (which is our strike) Put Option......The premium is 3.00, our value is $150. We go ahead and hit Okay. Now, it comes up and it said we have insufficient funds in our account to do so. What do you want to do? Well, let's go ahead and open up an account, a fictitious account. We're going to come in here and say because we're in a time machine, let's say that back on March 2001, Thursday the 1st, we deposited $5,000 into our account. Now, that satisfies our need for the margin or the money necessary to buy that.....that Option.

Now, as the market steps forward, you'll notice that we fill our order on the following day. We fill it on the opening or the morning of the following day. The close, we have a difference between what we bought it for and what we sold it for. We bought it for $150.00, that's how much we paid for that Put Option. At the end of the day, that Put Option is worth $156.25. Well, we paid a $20 commission, so that gives us a loss at $13.75, on the very first day.

As we step this market forward, and the market starts to come into our favor, now we only have a loss of $1.25. As it comes past our strike price, you'll notice that we now have a profit of $148.75. So, as this market moves in our favor, or back against us, our profits and losses accumulator, are depreciated. As this market moves, you can see everyday that we click, the value of your Option changes prices, changes value, gives you profit and loss.

Let's say we get to this point, here, and we have $773.00 profit on that Option. Let's liquidate or get rid of that Option, and take our profits.

The way we do that, and just simplicity, sake, I'm going to turn off the text. I'm going to Show Font, turn that off. I'm going to place another Put Option. Now, this time I'm going to lay it right across, it's got to be on the exact same strike price, the 240.00 strike. If we put it up here, then we're talking about a different Option. So, we can't liquidate up here, we have to liquidate right at the exact same strike price. So, where we bought this option, we're going to now sell this one. So, we bought a 240.00 strike, we're going to sell a 240.00 strike. The value, you can see is currently at 943.75. So, we release our mouse button. Now, instead of buying, we're going to Sell 1, 240.00 Put. We go ahead and we say, Okay. We step the market forward, one day, the following morning. That Option is liquidated for us and have a closed profit of $753.75. That's how you buy a Put Option, in Track 'n Trade Pro.

Of course, remember: to do Options, you must have the Options Plug-In for Track 'n Trade Pro.

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