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 Long put
Issued on August 05 2010 par Strategies-options.com
Purchasing puts one of the two basic option strategies, simple and effective.
Buying a put option corresponds to a very important utility in trading, options as a tool for hedging.
I - A situation Asset Managers are structurally "long the market", that is, owner of stock positions. They are thus exposed to a sharp fall on stock prices. Futures for example allow them to hedge themselves, without any chance to a later recovery. As an answer to the lack of flexibility such a position provided, put options naturally justify their existence. By purchasing a put one pays an insurance against a fall. Profit on the put would match loss made on the stock. That leaves almost intact the possibility for later profits. Graphically it comes:   II - A tool to hedge a portfolio Here is the P&L of a long stock   By buying a put on that stock, one can change the P&L into   Profits are now lowered by the premium amount, but the losses are definitely cut. Next : Writing Puts Previous : Long Calls Download the pricer here BASIC OPTIONS STRATEGIES - INDEX BASIC OPTIONS STRATEGIES - CHAPTER I BASIC OPTIONS STRATEGIES - CHAPTER II BASIC OPTIONS STRATEGIES - CHAPTER III BASIC OPTIONS STRATEGIES - CHAPTER IV Strategies-options.com |
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