Description The investor writing Put options should believe that XYZ is not going down! XYZ doesn't have to go up, but it must definitely should not go down. The maximum profit is limited to the Put premium received and is achieved when the price of XYZ is at or above the option's strike price at expiration. The maximum loss is unlimited. Writing Puts: Why? Like uncovered Call writing, uncovered Put writing has limited rewards (the premium received) and potentially substantial risk (If XYZ falls below the strike price and the writer is assigned). The primary motivations for most Put writers are: - to receive premium income, and
- to acquire stock at a net cost below the current market value.
Risk/Reward Characteristics Break-even Point: At expiration, the break-even point (B.E.) is equal to the strike price of the Put option minus the Put option's premium. Before expiration, the break-even point is higher. Profit: Profits are limited no matter how large the advance in XYZ. Loss: Losses are unlimited!! Time Decay: Positive. A Put option's premium consists of both intrinsic value (if any) plus time value. As time passes, the time value portion of the Put erodes (i.e., decays). At expiration, the Put's value will equal its intrinsic value. Changes in implied Volatility: Changes in the option's implied volatility has an effect on the "time value" portion of an option's premium. Thus, a change in the option's implied volatility has the same effect as changing (+/-) the number of days remaining until the option's expiration. | 
