Put options on stock indexes. In finance, a put or put option is a stock market device which gives the owner of a put the right, The term "put" comes from the fact that the owner has the right to "put up for sale" the stock or index. Put options are most commonly used in the.

Put options on stock indexes

option strategies part 1(stock market/index call put)

Put options on stock indexes. In finance, a put or put option is a stock market device which gives the owner of a put the right, The term "put" comes from the fact that the owner has the right to "put up for sale" the stock or index. Put options are most commonly used in the.

Put options on stock indexes


The Index Strategy Workshop is designed to assist individuals in learning about various index option strategies. These discussions and materials are for educational purposes only and are not intended to provide investment advice. For the sake of simplicity, taxes, commissions and other trading costs have been omitted from the discussions and strategies. These should be taken into account when making investment decisions. These strategies are based on hypothetical situations involving a European-style, cash-settled index and should only be considered as examples of potential trading approaches.

Access to, or delivery of a copy of, the Options Disclosure Document must accompany this worksheet. Buying an index put is one of the simplest and most popular bearish strategies used by investors employing index options.

It allows an investor the opportunity to profit from a downward move in the price of the underlying index, while committing less capital compared to the potentially significant margin requirements needed for a short sale of numerous component issues. In addition, a long put holder is not subject to margin calls with increasing underlying index prices as is an investor with short stock positions.

Buying an index put gives the owner the right, but not the obligation, to sell upon exercise the value of the underlying index at the stated exercise strike price before the option expires.

American-style index options may be exercised at any time before the contracts expire. European-style index options may be exercised only within a specific period of time, generally on the last business day before expiration.

However, any long index option may be sold in the marketplace on or before its last trading day if it has market value. All index options are cash-settled. For contract specifications for various index option classes, please visit the Index Options Product Specification area here. The profit potential is significant as the level of the underlying index continues to decline, and is limited only by a potential decrease in that level to no less than zero.

The financial risk is limited to the total premium paid for the option, no matter how high the underlying index increases. Many investors find this limited risk more attractive than the unlimited upside risk incurred from a short sale of component stocks.

In addition, a short seller of shares must pay any dividends distributed to shareholders while the short position is held; a put holder does not. As with any long option, an increase in volatility has a positive financial effect on the long put strategy while decreasing volatility has a negative effect.

Time decay has a negative effect. Account Settings Sign Out.


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