Chapter 10: Strategies for buying put options

In this chapter we are moving from a bullish view of the market to a bearish view and will focus on how you can use put options to profit from a falling stock price. As buying put options provides you with the right to sell your stock at a set price, you are able to lock in a sell price in a falling market to either profit from this move or protect existing positions.

The conventional approach to investing in stock markets is to buy in a rising market and to stay out of a falling market. Put options, however, give you an opportunity to profit from a falling market. The value of an in-the-money put option increases as the price of the underlying stock falls. The further the market falls, the more your put option increases in value.