How to Buy Put Options

How to Buy Put Options Contracts

9 min read

Do you know how to buy put options? The process is simple. Go to an options chain. Typically, puts are on the right side of an options chain, and calls are on the left. Go to the “ASK” and click buy. You have the option to enter a limit order or market order. We recommend using limit orders to lock in your purchase price. Make sure to work the order.

  • Choose your broker
  • Fund your account
  • Choose expiration date
  • Pick strike price
  • Look for high-open interest
  • Look for volume = liquidity
  • Have entry and exit targets
  • Place your order
  • Take profits and limit risk

Do you know how to buy put options? Basic calls and puts make up the most simple options strategies and the advanced ones. As a result, it’s important to learn how to buy put options.

Trading options are a great way to make money in any market. Yes, even sideways markets can be profitable with options. Hence their popularity among those who trade.

If you’re going to understand how to buy put options, you need to know what options are. Let’s start at the beginning. An options contract gives you the right but not the obligation to buy (call) or sell (put) a stock at a certain price within a certain time.

One Contract

One contract controls 100 shares. As a result, trading options are often less expensive than trading shares, especially the higher priced stocks like $AMZN and $GOOGL.

For example, Let’s say you wanted to short a stock called $CRON that’s trading at $20 a share. Buying 100 shares means you’d be spending $2,000. It’d be cheaper to trade the option on that instead. You still get to partake in the bullish momentum of the stock, earning you some profits as the stock moves up.

Let’s say the put options contract for that stock has an expiration date of September 2019 and was $1. You’d only put up $100 in capital to control 100 shares. See the price difference? This might be more your style versus putting up the two grand capital to short the stock.

Options trading is an excellent way to grow a small account without resorting to penny stock trading. While there’s nothing wrong with penny stocks, that sector is risky and largely manipulated. Most people will look at penny stocks and then check out options.

Am I making sense? Moving on, trading services like the Bullish Bears love to trade options. We like to do so in a less risky manner using technical analysis and other formulas to trade. Options may have the reputation of being risky. However, learning how to trade them properly helps mitigate the risk. Hence, one must know how to buy put options properly.

Put Options Example

How to Buy Put Options Example

What Are Put Options?

Put options take the bearish bias of a trade. Hence, there is a need to know how to buy put options. It’s a great alternative to shorting. Shorting is extremely risky, and the risk is unlimited. At least with options, you can only lose what you invest into the options trade by shorting its uncapped risk.

Finding trading companies with good short-selling ability can often seem difficult. Therefore, put options are attractive to traders who want to make money when the market is moving down. AKA bearish markets.

The simplest way to understand how to buy put options is to understand their goal. In short, buying put options is very similar to short selling. Both are bearish strategies that make traders money.

If you understand shorting, chances are you’ll have a good grasp on how to buy put options or the reasoning behind the strategy.

In other words, you’d trade using puts to make money when you find bearish patterns on charts. When you see the proper setup, you make your trade. Set your entry and profit target, and stop loss in advance. Always have a plan ahead of time!

For example, if you saw a head and shoulders pattern on Facebook’s chart (any time frame), you’d buy a put option. You want to profit on the move down when the stock begins to move lower – preferably on high selling volume and a bearish candlestick (like an engulfing bearish or evening star).

You can take advantage of the move south by knowing how to buy put options. Ahead of doing anything, make sure you’re comfortable trading options. It’s not for the faint of heart, and it’s not a get-rich-quick scheme.

COMPANY
TradeStation ThinkorSwim Logo Tastytrade Logo
DESCRIPTION Experience TradeStation's professional-grade options trading platform, built for serious traders seeking value and power ThinkorSwim is for more advanced options traders. It features elite tools and lets you monitor the market, plan your strategy, and implement it in one convenient, easy-to-use, integrated place Trade options on stocks, ETFs, and broad-based indices. Trade equity and ETF options online for $1.00 per contract opening commission and $0 commission to close, capped at $10.00 per leg
HIGHLIGHTS

Do You Like Your Options Broker?

You need to get your stock training on and learn how to buy put options. As you do that, ensure you’re completely comfortable with your broker. Options have more way moving parts than stock trading does—specifically the options Greeks. Don’t worry; we have a whole options course to help you get there.

If you’re going to know how to buy put options, you want your trading company to be one you’re happy with. A broker is where every aspect of stock market trading occurs. Sometimes, you can negotiate your commissions. Brokers usually want to keep your business, so haggle with them if you’re an active trader.

Also, you want to make sure you’re comfortable reading their options chain. That’s the bread and butter of options trading: knowing how to buy put options. The options chain shows you the various strikes, dates, and volume of the options available for that company. Following unusual volume for an options strike can sometimes be handy, along with proper technical analysis.

Knowing all this, make sure you know how to customize your options chain to show what you’re looking for, whether it’s the Greeks, volume, open interest, or all of the above.

Again, you must practice in a simulated account first—something we at the Bullish Bears highly recommend for newbie traders.

How Do You Make Money Buying Put Options?

How do you make money buying put options? Simple. Puts are a directional-based trading strategy. They are used when you believe the stock price is going down. Your options contract will increase in value as the underlying stock price falls.

How to Buy Put Options by Practicing

Have you ever heard the saying “practice makes perfect”? While nothing in trading will help you become the perfect trader, practice helps.

We recommend placing hundreds of practice trades before using real money. That may sound excessive, especially to new traders. You’re probably thinking that we’re being overprotective. However, it goes a long way in helping you learn the mechanics of options trading.

You learn the ins and outs of options. They have more going on than stocks. As a result, profit and loss are affected. You could blow up your account if you jump right in without learning or practicing how to buy put options.

That’s not something anyone wants. Hence why practice is key. We love the ThinkorSwim simulated account. They have a great customizable options chain and an easy-to-use platform.

Do You Know How to Buy Put Options?

Since options trading has moving parts, it’s important to know when to buy a put is the right time. You want the stock to move down in price.

As a result, you will be on the lookout for bearish patterns. You could miss out on the move if you don’t know how to buy put options.

Candlesticks, patterns support, and resistance go a long way in helping you place a successful trade. Remember, there’s no magic formula to give you a 100% success rate.

However, the tools are there to give you the best information going into a trade. Make sure you know how to spot bearish candlesticks and patterns. Download our candlesticks patterns eBook to learn how to use them.

Final Thoughts

Knowing how to buy put options is one thing. Trading them using risk management is another. You must have a maximum loss since you can potentially lose the entire trade if it backfires.

You may have a maximum loss in mind, and that’s great. Sticking to it can be another thing altogether. We’ve all been in the position of wanting to hold a losing trade in hopes of recovering.

However, options aren’t stocks. They’re wasting assets. As a result, you need to cut your losses quickly. Risk management is key to protecting yourself, especially with real money.

Knowing how to buy put options allows you to profit when the market or a stock is heading down. It’s a skill that keeps you from sitting on the sidelines in a bear market, especially if your broker doesn’t have shares to short.  

If you need more help, take our options course.

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