Buy Put Option
Long Put – Buy Puts in a Bearish market with at least 45 days until expiration.
Entry Rules
Bearish expectations for the underlying asset.
Low Implied Volatility resulting in cheap options.
Exit Rules
- Close position if it falls to 60% of purchase price.
- Close position 30 days to expiration.
- Evaluate position at 100% profit.
If you are still Bullish, close 50% of position to take your money off the table.
Use these exit rules again, but adjust your ‘purchase price’ to the current price.
This assures that you don’t give back all of your profit.
Otherwise, close your entire position.
Profit & Loss Calculations
Maximum Risk – Limited to the premium paid for the Put
Maximum Profit – Virtually unlimited as the price of the stock falls below the break even to zero
Breakeven – Put strike price – Put option premium
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