What is the difference between out of money put and in the money put?
Suppose nifty trades at 6000 in dec 2010.
then a Out of money put eg will be jan 2011 5100.
and In the money put will be jan 2011 7000.
Now we know that by buying puts we expect to make money from prices falling?So it is understandable to buy nifty jan put 5100,however it is not clear how does one benefit from a higher strike puts like nifty 7000 (when nifty trades at 6000).If one expects the price to go up then one should be buying calls instead of higher strikes put? Please clarify.
Suppose nifty trades at 6000 in dec 2010.
then a Out of money put eg will be jan 2011 5100.
and In the money put will be jan 2011 7000.
Now we know that by buying puts we expect to make money from prices falling?So it is understandable to buy nifty jan put 5100,however it is not clear how does one benefit from a higher strike puts like nifty 7000 (when nifty trades at 6000).If one expects the price to go up then one should be buying calls instead of higher strikes put? Please clarify.