For many sophisticated investors, trading options is a routine practice that can be hugely profitable, but retail investors can also transact options contracts on the open market. It's a strategy with potential to enhance investors' portfolios and to help them better navigate the market. Want to succeed at trading options? You need to understand exactly how these contracts work. Salman Khan of the Khan Academy explains put options, which are contracts you purchase if you think a stock will go down in the near future.
From the first video, you’ll understand:
- How put options compare to selling or shorting a stock
- What it means to own a put option on a stock
From the second video, you'll understand:
- What the profit/loss diagram looks like for put options
- How the price of an option influences buying decisions