Put Option - Explained in Hindi - YouTube

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Namaskar, my name is Mukul and welcome to Asset Yogi.

Friends in this video we will understand Put option in a little detail.

This video is also part of a series in

which we are discussing a financial derivative.

We have already discussed in detail Forwards, Futures, and Swaps.

even we understood the basics of the options in of my videos.

Then we understood the Call Option in a little detail in the last video.

If you haven't seen all these videos then you must watch them.

You will find all its links in the description.

In this video, we will try to know Put option in a little more detail.

You will remember that in the last video, I took the example of a bond.

That if you only buy bonds or debentures of a company,

you get a Put option in it.

So let's say you can exit by selling that bond after 5 years.

you have this right.

Now how does it apply in stocks,

or how does it apply in other investments?

What is profit and loss?

That's what we will know in detail in this video.

You must watch this video till the last.

let's go straight towards the blackboard.

Best way to understand Put option.

is to think of it as insurance.

Build a safety net if you want to protect something.

So for that you take insurance.

similarly, if you have any underlying asset,

Want to build security from stock or any underlying asset.

For that, you can take the Put option.

For which you have to pay premium.

Like you have to pay premium to get insurance.

You also have to pay a premium to buy the Put options.

You will remember when we talked about Call option in our last video.

So we said you can think of Call option

as an advance.

to take anything like you take in advance

or pay the registration fee, which is non-refundable.

But your prices gets locked and date gets locked,

That on this date will you get this item at this price.

You can think of Put option as insurance.

Let us now understand with an example,

Suppose you bought a Car.

got an insurance for that.

If you take insurance then you will make an agreement

with insurance company.

There the insured declared value is what we call IDV.

So the car's insured value for example let's say is 5 lakh rupees.

5 lakhs means if the vehicle is completely damaged,

then the insurance company will give you ₹ 5 lakhs.

How much premium did you pay 15000 rupees.

And for 1 year you took insurance.

So now see two scenarios are there,

In the first scenario, there may be an accident,

and the car is completely damaged within this 1 year period.

So here, if you go to sell that car,

if the car is completely damaged.

then you will hardly get 5000 rupees.

And you will also get this money in the form of junk ,

which means junk cost.

You might get 50,000 worth of whatever goes into a junkyard.

Then you remember that you also got an insurance.

So you make a claim with the insurance company,

you execute your options.

Now here you have the option,

you may or may not take this insurance.

So here if you take an insurance claim then you get ₹ 50 Lakh.

So how much was your profit here?

If you go to sell in the market for Rs. 50000.

And here you got your 5 Lakhs.

You got an insurance claim of 5 lakhs.

So you got a profit of 4.5 lakhs.

But you had also paid this premium of 15000,

then you will also have to deduct this.

So how much did you get the total profit of rs. 435000.

So the Put option works in the same way.

But before that we will also discuss about scenario 2.

what is scenario 2.

If there is no accident of the vehicle,

then no option of any method is executed.

And how much is your loss maximum of 15000.

the premium you paid.

Similarly, the Put option works as an insurance.

So if I talk about the definition of the Put option.

It is a contract between an option writer,

So who has become the option writer here under this agreement?

that became your insurance company.

who sold you this option.

So it's a contract between option writer and an option holder.

The option holder is, the car owner who has bought this option.

that give an option buyer a right to sell

(not obligation) stock/ underlying asset at a pre-determined price

by a pre-specified date.

So the thing to note here is Right to Sell.

No Obligation Here.

So see here you have no obligation that you have to buy this insurance.

You have a choice, you may or may not take insurance.

If you claim insurance then you will get ₹ 5 lakh.

You do not have an obligation here,

it is not necessary that you have to execute it.

It is your choice, whether to claim it or not.

Now suppose the market price could be higher

than it is possible you don't take insurance.

It may also happen that the entire car is not damaged

Suppose a minor accident happens,

and your car is not damaged much.

So if you do not claim your insurance policy then that is also possible.

So you have the right to sell, there isn't any obligation.

And see here predetermined price

whenever you take insurance, this price is fixed.

what is your declared value.

You will get the insurance claim till this,

won't get more than this.

And your premium is fixed here and the pre-specified date is fixed too.

So here your period is fixed

that if the vehicle is damaged within 1 year

then you will get this claim.

This is the only way you can understand Put option.

And it also works in stocks in a similar way.

A little bit of terminology you get in stocks.

Like we talked about the insured value,

whatever the price will be in the future.

That's already declared, that is the strike price.

When we buy a Put option of a stock.

So the future price which is getting decided

then we call it the strike price.

Premium is premium here too.

period means expiry date.

For how many years or for how many months this option is valid.

and here is the current market price,

We call the spot price of that underlying asset.

This is basically your current share price for the stocks.

Whatever the price of the share,

of that particular day, we will call it the spot price

Let us now understand this a little better for stocks.

So when we talk about stocks, option is written in this way.

let's say ABC is a limited company.

Its symbol is ABC.

ABC20FEB100PE

So ABC is the symbol of the company.

28 February is your date. expiry date.

Your strike price is 100 rupees.

PE means it is Put European option.

Put European means that the European option

The strike price of the option

the day it is to be executed,

Like 28th February is your expiry date,

then the option will be executed on the same particular day not earlier than.

You will remember that we talked about American

and European options in our earlier video.

Suppose in American Option if you are executing

this option on 30th January.

let's say the spot price is rs.110 of the Share price.

So you can execute that option anytime till February 28.

In European options, you only execute

the day on which the expiry date is, the only

that's the only difference .

And because now mostly European options is used in India.

So here I have taken the example of European options only..

For example, we are executing here on 30th January.

we have mentioned in this option in the contract, have bought this option.

And the premium we have paid for it on 30th January ₹10 is given.

Have taken strike price, we have taken this option after 1 month,

this strike price on 28th Feb we will sell this stock at ₹100.

Sell ​​price is the strike price i.e.

the sell price which is on February 28 has been kept at ₹ 100.

So pay attention I said that right to sell is here,

You have the right that you can sell it for ₹ 100

to this particular stock.

then what type of graph will be made.

Look, some this type of graph will be made.

Right now we are saying that the current market price

of ₹ 110 is going on as your spot price on 30th January.

your spot price is ₹110.

You think the market is going to go down from here

Now these stocks are very likely to go down,

In such a case, you buy one of your put options,

you are creating your own safety net.

So what are you doing here you are paying a premium of ₹ 10.

So a premium of ₹ 10, the graph will be something like this.

If the stock increases, it grows more than rs.110.

Your loss maximum is only ₹10.

you owe nothing

Like you had given ₹ 15000 under insurance,

here you gave your ₹ 10.

You will not have any loss beyond this.

Your maximum loss which is now will be only ₹ 10.

But if the stock starts to go down.

Here 100 goes before 110.

and starts to decrease to less than 100 that's your strike price.

you start earning more.

let's say till February 28 it comes to ₹ 70 only.

So how will your profit and loss be calculated?

Your profit and loss will be calculated by this formula,

P&L = Strike Price - Spot Price - Premium.

So here is your spot price of ₹ 70.

And the strike price becomes ₹100.

So 100 - 70 will do.

And if you minus the premium,

then your net profit became ₹ 20.

So if the spot price here If we talk about February 28,

that day becomes ₹ 70 so you get so much benefit

But on this side of the share price starts going up

then it will be your loss.

and what will be the maximum loss, it will be ₹10.

So all you have to do is remember this graph.

Let me tell you now there are some other terminologies too.

It's called as At the Money

When the strike price equals the spot price.

So here if it comes down from 110 to ₹ 100.

₹100 is our share price.

So your strike price is also ₹100.

So we will say that this option is At the Money

i.e. the strike price has become equal to the spot price.

So how much is your maximum loss here,

the maximum loss is only ₹ 10.

you have to remember this graph.

What does In the Money mean?

that the strike price exceeds your spot price.

the spot price i.e. the share price has started decrease,

it has come to this side.

Besides strike money the whole area of ​​this side is In The Money.

In the Money means In a way, your profit side has started increasing.

But not necessarily your profit.

Because see you have paid this premium too.

This area too you have to cover,

You are getting loss in this area.

so what is your profit here?

Profit = Strike Price - Spot Price - Premium

So see, I had given you an example for ₹ 70.

It is purely In the Money.

100 - 70 - 10 = 20 i.e. Your profit is ₹ 20.

Let's take another example,

Suppose here its ₹ 95,

So what will be your profit here,

What is your strike price of Rs.100?

That is our fix that you can sell it for ₹ 100.

And this ₹95

I'm saying you get it on February 28

Spot Price = 95 rupees.

So you execute this option here

If you execute this option,

So our spot price is 95 - 10 is our premium

So here we actually lost ₹ 5.

So having In the money option does not

mean that you will make a profit.

But you can understand that your are moving towards profit.

Or you can say that even if there is no profit then your loss is limited.

Because see this premium also you have to cover,

So in this part,

You can limit a little loss,

but you don't actually profit here.

Profit actually starts near the break even point.

So which is out of the money option?

This means that the Spot price has exceeded the Strike price.

Your spot price, that is, the current market price,

has started moving in this direction. then you will get loss.

If the price is more than Rs.100.

You will only lose the stock.

And what will be the maximum loss that will be your premium.

Because you have done premium, you have limited your loss.

And we have already seen the break even point Here it will be ₹ 90

break even means that when it goes down here you will start making profit.

So the formula for break even is simple.

You remove the premium from the strike price

so you get the break even, In the case of Put option.

There you get no profit no loss.

So this is the correct terminology you have to keep in mind.

When we talk about the Call option and Put option.

In Call option also have to keep in mind that At the Money and In the Money,

there is little change, there's a slight reverse.

So you must watch my video of Call option.

In that, you will come to know, how At the Money, In the Money, Out of the Money works.

So I think I have discussed all the topics of Put option here.

Now let us see if we should ever buy a put option and when to sell.

What Kinds of Bearish or Bullish modes are?

So see, when will you buy a Put option.

When do you buy when you think that the stock market,

or the particular stock will go down,

Bearish means he will go down.

So when you had the spot price of ₹ 110 on 30th January.

You thought it would all go down from here

so that's why you bought the strike price of ₹100.

if it goes down than this,

then at least then I will start benefiting.

So what did you do you bought your one way insurance.

if it goes down you will start to gain profit.

So here your downside is limited,

You will have maximum loss of ₹ 10 only.

Like we saw in the case of insurance.

But your upside is unlimited, keeps going below ₹90.

then it let You Start to Gain Maximum.

But the stock price can also go to zero.

So till the time, it goes to zero you can gain profit.

So upside down is unlimited.

How long is it until the stock price goes to zero.

It's very difficult to zero unless the company bankrupts.

So whatever max it goes down here,

So you start benefiting there.

When to sell Put options?

When you think the stock price will rise from here,

But I don't want to make too much profit,

But I want to sell an option at my premium.

you sold your Put option.

you got ₹10.

Your ₹10 is completely fixed.

But if the stock goes up from here,

So here you will not get much benefit,

no extra benefit.

But you will get a profit of ₹ 10.

But by chance if this stock starts falling,

then in such case you are incurring loss.

You are not getting a profit of what you should.

So it's your opportunity loss.

so what are you doing in the Short Put?

if you sold it.

So the profit will be ₹10.

So basically you sell your Put option

When you feel that you are bullish.

you expect the stock price to go up,

But I don't want to take too much risk,

I just want to make my ₹10 profit.

So you sell the Put option.

So here we see that your upside is limited.

You have maximum benefit of ₹10 only.

There is unlimited downside and unlimited downside is until the stock is zero.

So in this way your Long Put and Shot Put are.

Now let's see a little comparison.

Suppose you are bullish then you have two options.

you might remember the video of Call option so you can make Long Call.

This means you can buy a Call option.

if you gave ₹ 10 here of premium.

And if the stock price starts rising.

So you get unlimited benefits.

This is a full gain option.

But your maximum loss is ₹10 only.

And if in Bullish we just saw,

You can also adopt the strategy of Short Put.

You think you don't want to take unlimited risk,

I just get my ₹10.

And that benefit is enough for me.

So here you earned your ₹ 10 but if it decreases.

If the stock goes down then your downside was limited,

So it depends on you what kind of strategy you want to adopt.

If You Are Bearish for Stocks.

If you think the stock will go down in the future.

So you can do one thing that you can go with Short Call.

and you can earn ₹10.

and your loss is unlimited.

This if the share price increases then it's unlimited

because the benefit that you can get will not be with you anymore.

You earned your ₹10 here.

But by chance if this stock goes down.

So the advantage you should have had won't happen,

You have just limited your upside.

because you think here stock will going down,

you think the stock will go in this direction.

So that's why you thought that you just have to earn ₹ 10.

don't earn more than that,

But you think the stock's going to be like this Will be less,

And you want to make more profit out of it,

So you can go with Long Put.

You bought a Put Option for ₹10.

here, your loss be limited.

But if the stock goes down,

From ₹ 100 here it becomes 90 or 80 or 70.

So you get unlimited benefit.

So it depends on you how much risk you want to take.

So as you saw in Bullish's case

If you want to take more risks then you buy Call option.

If you don't want to take the risk

then you sell your ₹10 Put option.

You think you are bearish, and the stock will go down,

If you want to play Unlimited so you go with Long put.

you buy Put option.

If you want limited,

you think you get your ₹10.

So you sell it and you have earned your immediate benefit.

So this way, you can make your own strategies in Call option and Put option.

I hope after watching this video you must have understood the topic of Put option.

But if you deal in options let me just give you another warning,

that's a zero sum game.

As many people make profit, so many people can also lose.

That's why if you want to deal in options then,

you should keep on increasing your knowledge.

After watching the video, you must keep increasing your expertise.

But options are a good tool to reduce your risk.

You can definitely implement these in

your business contract or financial contract.

so I hope you like this video,

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