re: So I bought some Gamestop(GME)

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You can buy the stock at $10 and sell at $20. More than likely though, you’ll just sell the put and take the premium appreciation instead of having to buy the stock and then deliver it.

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Thanks. And if the stock is still trading around $100 nearing expiration? Could I be on the hook to have to buy $10,000 worth and sell it for $2,000? Or could I just let it expire?

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So I just watched a few YouTube videos on options and I totally get calls, but I'm still confused about how puts work. Can someone help me understand, in understandable English, how a put would work for this stock? I do not own any shares.

Puts for Mar 5th expiration at a $20 strike price are right around $2.00. I know that a put is the option to SELL a stock at the strike price, but not the obligation to sell it (I don't own any to sell).

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What stock you talking about Macy? I'm looking at Macy's options right now, though it probably isn't updated with after hours numbers but I'll just use them as an example.

Macy price at time of example: $16.27

March 5, $20 put strike is at $5.58.

So you are paying $558 for 1 contract (1 contract equals 100 shares, so $5.58x100 = your $558) put at the $20 strike. Basically you have the right by March 5, to sell 1 contract of 100 shares at the price of $20/share. But you have to remember your premium that you paid for the contract, which was $558. So to find out what your 'breakeven' price is you need to subtract the contract price from the strike price. So $20 minus the $5.58, which is $14.42. So the stock price of Macy needs to get below $14.42 for you to make a profit. But that is why the greeks are so important, but it is constantly changing and definitely has an affect on the price/profits. IV (implied volatility) is also very important in this regard too.

Also there are several things you can do with a option contract, you can buy a put/call or sell a put/call. If you are new, I would highly advise against ever selling a put or call. If you sell a put/call then you could end up having to buy 100 shares at the strike price, which can be thousands of dollars. If you have 100 shares of the stock and sell a put/call then it isn't as risky then, though you could lose your 100 shares.

So just stick with buying a call or a put. And when you buy a call or put, you can 'exercise' it which means you are going to pay the strike price for 100 shares. Otherwise, you just can sell the option contract to someone else and take your profits. Hope this helps and can explain more if needed.

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Thanks. And if the stock is still trading around $100 nearing expiration? Could I be on the hook to have to buy $10,000 worth and sell it for $2,000? Or could I just let it expire?

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You would let it expire worthless.

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If you sell a put/call then you could end up having to buy 100 shares at the strike price, which can be thousands of dollars. If you have 100 shares of the stock and sell a put/call then it isn't as risky then, though you could lose your 100 shares.

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See, what you're saying runs counter to what others have said, such as this:

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If you BUY puts/calls you're not on the hook for anything. The premium you pay is your max loss

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Probably why I'm getting confused. And I thought I could have that option appreciate on the market and sell it to make a profit.

Unless we're talking about two different kinds of "sell a put/call".

The moral of the story is never let any option contract go all the way to expiration. Even if it’s for 10 cents. Close it out.

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Chitown_Badger

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You are getting confused. There is a big difference between "selling" a put/call and "buying" a put/call.

Buying an option, you can only lose the premium you pay. Selling an option and you can lose way way way more than you could make in the premium. When selling an option, you make money on the premium price someone pays you.

There’s a big difference between buying to open and selling to open.

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Well if I buy a few options and they appreciate, I would want to sell and take my profit.

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with options you can sell what you don't have

So you can BUY a put and you can SELL a put. You're confusing the latter with selling a put that you had previously bought to close your position

If you believe the stock will go down yes that is the correct way to do it.