What is a Put Option?

put optionA lot of traders are attracted to binary options trading because it offers a choice between only two possible outcomes. When you invest in a binary option, you only need to answer one question: will the market move up or down? If you think it’s going down, you invest in a put option.

A put option is simply a prediction that the price of an asset – a commodity, a stock, an index, etc. – will go down. In sharp contrast to old-fashioned, traditional trading, you do not buy anything. You simply make a prediction. This means you don’t have to worry about buying and selling anything.

Another great advantage of binary trading is that the payouts on offer can be much greater. You can make a 75% return on a put option in as little as 30 seconds. A similar return in a similar timeframe would be unthinkable by investing the old-fashioned way. What is more, a put option is your chance to make money when the prices are dropping. That the price of, say gold, is sinking is not something you can capitalize on by buying gold, obviously. But by trading a put option, this sinking price can lead to surging profits for you.

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Defining the put option

When you log into your binary broker and go to the trading platform, you will get to choose among a range of different options. The first thing you do is choose an asset. Thereafter, if you believe the price of this asset will go down, you choose the put option. This simply means you believe the price will drop. Then, you set the expiry time. You can in most cases choose a timeframe of between 30 seconds and an entire trading day. Finally, you choose how much money you wish to invest in this put option.

Please be aware that sometimes a put option will be referred to as a Down option. Don’t be confused: it is exactly the same thing.

Trading the put option

So, how do you know when the price of an asset is likely to sink, and it is smart to invest in a put option? There are several possibilities. You can study price charts and rely on technical analysis to predict when a downward movement is likely. You can also subscribe to a binary signal provider, and trade a put option when their signals indicate that this is likely to yield a profit. Another option is to keep your eyes on the news updates. If a company releases bad results or disappointing forecasts, this can predicate a drop in the share price. Invest in a put option and make some easy money!

So, let’s say you have identified an asset you think is likely to go into a period of falling prices. The first thing you need to do is log into your binary broker. As described above, you enter the trading platform, choose the asset in question and complete your put option. Your broker will immediately let you know what sort of payout you will win if your prediction is correct. In most cases, your return will be somewhere between 65% and 85%.

As soon as the expiry time is up, you will receive your money if the price of the asset really did go down. If you invested $100, you stand to make between $65 and $85 in pure profit! Should the price not go down, you lose your $100.

Summary

A put option is a fast, easy and accessible way to make money on falling market prices. You can obtain great profits by trading put options as part of a number of binary options strategies.

 

What is a Put Option?
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