help with option trading, page-6

Skip,

you have it 100% wrong ( Probably just confused your terminology, but wrong nevertheless)

Stix

If you thought a share was going to fall, you could SELL ( not buy) a call option.
At that point you would give the purchaser of that option the right, but not the obligation, to buy those shares from you at the strike price up until the option expiry.
For that the buyer would pay you a premium which you get to keep.

Lots of strategies.... you could sell the option with a strike price above, below, or close to the underlying security price.
All have different risk/reward outcomes.

The maximum profit you can make is the premium you receive.
The max loss you could make could be much higher if the shares rose significantly,



Or as you suggest ....... you could BUY a put option.

This gives you the right, but not the obligation, to sell the shares at the predetermined strike price up until expiry of the option.
You pay for this option and again there are stike prices above, below and close to the underlying share price, all with different risk/ reward possibilities.
The maximum loss, if the shares rose instead of falling as you predicted, would be the premium you paid to buy the put.
If the shares fell substantially as you predicted you profit would be large
Usually options are not exercied, but are closed out prior to expiry by selling/buying what you have bought/sold (hopefully at a profit) or they simply expire, worthless.

Not all shares have exchange traded options available and many are very thinly traded... safer to stick with the likes of BHP & the big 4 banks.

Statistacally the majority of options expire worthless so it is can be quite a nice little sideline to "write" (that is sell) options, pick up the premiums..... and watch them expire worthless, without being exercised........month after month again and again.



You cannot do this until/unless you are registered as an options trader.
There are documents to be read, and forms to be filled out to ensure you understand how it works.

Its not too difficult to follow, but suprisingly few brokers/ advisors know too much about it.

As Skip and others said, you need to get some advice and do a bit of reading, and there are books available.... but it can be very worthwhile.