Strategies

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Buying SPX Puts

 

SPX Index is below break-even point of 1365 at expiration
 

Buy 1 SPX 1390 Put at $25

 
If the SPX level, or its exercise settlement value, is below the break-even point of 1365 at expiration, the SPX 1390 put will be in-the-money and would be exercised.

For instance, say the SPX settles at 1355. The cash settlement amount received upon exercise would be:

$1390 (put strike price) – 1355 (settlement value) = $35 x $100 = $3,500

The net profit for the SPX 1390 put in this case would be:

  $3,500   cash settlement amount received at put ’s exercise
- $2,500   total premium initially paid for put
  $1,000   profit

This net profit of $1,000 represents a return on an initial investment of $2,500 total premium paid for the put of approximately 40% over the 3-month life of the put contract.

 
 

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