You have probably seen a lot of articles out there explaining the Put option. Many articles claim to talk the talk but won’t walk the walk. So, in this article, I will walk you through the process and teach you how to buy a Put option. We will be using the TD Ameritrade platform, the desktop version. Most importantly, I will keep it simple and easy to follow; so, that whether you are a brand-new trader or an experienced trader, you will be able to follow along and learn how to buy and sell puts.
Before we begin learning how to purchase a Put option, we need to understand what it is. In the stock market, you have two possibilities of movement; calls and puts. A put option is someone making a prediction that the price of the option will go down. If the option goes down, the person who purchased the put will make a profit. The goal will be to sell before the option starts to go in the other direction; in which they would then lose money. The max you can lose with a Put is the price you paid for it. So, if the stock goes up in price, your Put will lose value. The specific stock that we will be speaking about is SPY options.
What Do I Need to Buy Put Options?
Well for anything in life you are going to need money in your account to be able to make a purchase. Nothing changes when it applies to purchasing options in the stock market. Before we can get ready to purchase a Put option; you need to add money from TD Ameritrade Account. Once you have money in your account, you then need to have a plan. Having a plan when it applies to trade options means using a strategy. I will show you how to use a strategy to know when to effectively enter and exit a Put trade.
The MK VIP training program will not only teach you the strategy you need, but also has plenty of resources to help you get started on reaching your option trade goals. Not only will my program get you started, but I provide support to help you with your live trades. As long as you follow the program and put the time into practice, you will be profitable for at least 80% if not more of your trades. I will now show you a sample of what to expect with my program.
Walk the Walk
In the image below you will see your trading platform, we will start by focusing on the top left screen. Before you start playing baseball, you have to warm up to get your body ready for the game. The same applies to purchasing stocks; you need to get your platform ready before looking at stock prices. You will first label your support and resistance zones; in the diagram below, the zones are red and green. By labeling this area, you created your play area to follow your strategy. You are able to do this by drawing resistance lines where green and red candles are at the highest point and the lowest point; the highest point is circled in yellow below.
Now we will start implementing the strategy to purchase a Put option. For the strategy, you will need to follow a sequence of candles. You will need a zone candle, reversal candle (opposite color), confirmation candle, and then an entry candle. We need to wait for the sequence to touch our zone area; like in the image below.
Another important element to remember when watching the candles form is since we are purchasing a Put option, the candles should be forming downward not upward. Once we have our entry candle. You will go over to the right top screen, and click on the spy dropdown; it’s highlighted in yellow. It will drop open a window for you to select the price you will buy your option as well. You will then make sure you have the number of contracts you want to purchase selected, you will see this number next to QTY in this same box.
The price you selected in the drop-down will show up underneath the template where it says price, and it will highlight it in gray. You will then click on the bid size box next to the left of that number and enter the trade. The number of options contract you select; you will have purchased. If you get an alert that the order was canceled, it is because you didn’t have enough money in your account. If you do not get that alert, then all that is left to do is watch the chart on the left again and wait for a candle to touch your green zone area or if you see the market is starting to trend in the other direction; which would be upward. This area that was discussed is highlighted for you in the diagram below.
In the image below, it was clear that the green candle forming volume was pushing upwards. Meaning the candle was growing and the ones to follow were going to continue to trend upwards. What this translates to you is you need to exit your trade, or you will lose money. So, at this point, you will click on ask price on the top right-hand screen and click in that box next to the price. You will now have closed your position on however many options contract you had and walked away with your profit at the specified price you clicked on to exit your position. These areas are indicated in yellow for you to understand what just occurred.
Put Your Money Where Your Mouth Is
Now you must be thinking really you took me this far, and you are going to leave me hanging. No, I will show you that the prediction was right, just by the way the green candle was forming. It was evident that the market was going to start trending in the other direction. The best thing was to sell your current position. As you saw for yourself, stock moves quickly and if you take your eye off the ball your profit potential can drop. In other articles, I go more into detail about these types of shifts in the market; below is the image showing you the results.
Few Tips
A bit of investment advice; I would recommend you just put the contract to be bought when you start trading on your own. Doing this helps minimize loss and helps build your risk tolerance. I would also advise your initial investment to be an amount you would be ok losing in the event your trade did not go as planned. It is also important to know you cannot lose more than what you paid for the Put. You need to be able to get in and out of a trade quickly and smoothly; this will come with practice.
Why is this important? Because time is money, the longer you wait to enter a trade it can go up in price; so, the predetermined price you had in mind will change. The more you wait to exit a trade, the more money you can lose; which means a higher strike price. So, if you want to keep the premium paid low, use your trading platform to practice getting in and out at a specific price and specified time frame. You don’t want to lose your entire investment when a stock falls, and you want to keep the price paid low.
Summary: How to Buy a Put Option
Congratulations, you just learned how to walk the walk on buying puts. As you can see, it is important to practice the strategy because unlike in practice mode, you can’t pause the stock market. Things are constantly changing like option prices, intrinsic value, underlying stock price, stock price declines, underlying stock falls, stock rises and the stock stays the same. A great strategy without putting the work in on your part means nothing. Repetition will make you successful and will help you master your entry and exit points. What I just walked you through in this article was only ten minutes, and look how much the price dropped; imagine the profit you would have made on that one trade.
You don’t need fancy interactive tools to be successful, simply the MK strategy. My goal has always been to help as many day traders achieve their personal financial goals, whether they are novice traders or experienced traders. The MK VIP training is the key to your financial freedom. After you complete the program, I provide you with lifetime access free of charge to different articles on trading. I do this to ensure you are always keeping sharp, learning more, and knowing that you are always supported. Like I said, and I can’t stress it enough, knowledge is what will determine your level of success. In trading, your past performance will help you with future trades.
Learn More
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Feel free to check out other FREE educational resources to help guide you as you begin your new journey to financial freedom.
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