The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be answering the question, “How does a put option make money?” A put option contract (and we’re probably specifically talking about a long put option contract) makes money in two different scenarios. The first scenario is that the stock continues to move lower or makes a large move lower during the time that you’re holding that put option contract. This would be the most obvious case because many option buyers, especially put option buyers, are looking for the stock to make a significant move lower before expiration. The second scenario in which a put option would make money is if we see an increase in overall volatility for the underlying stock that you’re trading. Even if the stock doesn’t make a significant move lower, you could see a big increase in the underlying stock’s implied volatility and this would suggest that most people are anticipating a big move in one direction or another and as a