So, assuming the price went as low as $250, exercising your put option means protecting yourself from the market downturn and selling at a profit of $50 earning per share instead of being at a loss. If TSLA share price falls below $550 per share by the specified expiry date on the contract, you can choose to exercise your right to sell the stocks for the strike price of $550 to the option writer you bought the put option from. The put option contract will state the strike price, e.g., $550, the number of stocks you will be selling, e.g., 100 shares, and the exact date the contract expires. Or it can rise even higher than $600, and you’ll be wishing you’d bought 200 shares.įor a fair price, you can buy a put option contract to protect yourself or a call option to take advantage of the opportunity if the price indeed rises higher.

You believe the price of the shares will increase quickly to $600 per share by next month, so you can sell it ( future value = 100 × 600 = $60,000) at a profit of $10,000.īut you can’t be too sure, things can go differently, and the price of a TSLA share can fall below the current $500 price, losing you money. Put option – gives the owner the right to sell the asset at the strike price.įor example, assuming you bought 100 shares of Tesla (TSLA) stocks at $500 per share today ( present value = 100 × 500 = $50,000).

Call option – gives the owner the right to buy the asset at the strike price and.

But you can only exercise a European option on the expiration date.įinancial market traders buy and sell options as protection (or hedge) against uncertainty in the financial market. An option is a contract that gives the owner a right to buy or sell an asset for a specific price (also known as the strike price) on or before a specific date (also known as the expiration date).Īlthough most options traders rarely exercise their option rights before the expiration date, you may exercise an American option at any time before the option expires.

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