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Long Put

Analyzing the risk profile of a long put strategy
Long options carry negative theta. What does that mean?
They are bearish positions
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They profit off of decreasing volatility
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Their delta shrinks over time
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They lose value over time
Correct! Negative theta means the option is negatively impacted by the passage of time. All extrinsic value in the option will decay to 0 by expiration.
XYZ is trading for $35. Which put will have the highest value?
30∆
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40∆
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$30 strike
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$40 strike
Correct! The $40 strike would be the deepest ITM and would therefore be priced the highest.
You buy a 35 put in XYZ for $1.00. In which scenario would this trade be profitable at expiration?
XYZ @ $33
Correct! Your break even would be $34 (35 - $1). You would profit $100 if this put expired at $33.
XYZ @ $34
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XYZ @ $35
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XYZ @ $36
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How does implied volatility expansion affect long options?
It harms their value
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It boosts their value
Correct! Long options carry positive vega which means they are benefited by expansions in implied volatility. When implied volatility rises, extrinsic value increases boosting the value of long options.
It does not affect their value
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It randomly affects their value
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Crap! You bought a long call for $0.75 but now it's about to expire $10 OTM. How much money are you going to lose?
$10
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$25
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$75
Correct! The most you can lose on a long option is the amount you pay for it. Since you only paid $0.75, your max loss is $75 ($0.75 × 100 shares).
$100
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