Long Put as Substitute for Short Futures
Chapters in this video
- 0:00 Short futures versus long put: two bearish paths
- 1:41 The unlimited risk villain and the bolted-ceiling analogy
- 2:15 "Keep risk limited" means buy the put every time
- 2:40 Direction trap: a put is the right to be short
- 3:05 The giant minus sign: breakeven subtracts the premium
- 3:36 Three formulas: breakeven, profit, and ROE
- 4:07 Crude oil 80 put worked example
- 5:49 Rally to 100: capped loss at four points
- 6:25 Rapid-fire exam recap
What this video covers
- Why a bearish speculator chooses a long put over short futures when the exam says "keep risk limited"
- How a put's worst-case loss of the premium paid compares to a short future's theoretically unlimited loss
- The directional distinction that a put gives the right to be short the future, not long
- Why breakeven for a long put subtracts the premium (strike price minus premium) instead of adding it
- How to calculate profit at expiration: intrinsic value minus premium paid
- Why return on equity (ROE) divides net profit by premium, not by margin, for an option buyer
- How to work through a full crude oil put example from strike selection through ROE
Read the full lesson, free
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