What Is a Protective Put?

Put options are also known as "put options", "sell options" or "knock out", and the symmetry of call options, one of the types of options trading, will be sold at a specified price and quantity on a certain day or in a certain period in the future. The right to produce some kind of securities. After purchasing a sell option, a customer has the right to sell certain securities to the seller of the "sell option" at the price and quantity stipulated in the contract within a specified date or period. The scope of its use, generally speaking, people are willing to buy and sell options only when there is a downward trend in the securities market. Because, during the validity period of the sold option, the buyer can only make a profit by exercising the option after the price of the securities has fallen to a certain extent. For example, a customer buys a stock option with a validity period of 2 months, an agreed price of 100 yuan per share, a quantity of 100 shares, and an option fee of 10 yuan per share. In these 2 months, if the stock price drops to 50 yuan per share, the customer exercises the option to sell the stock. At this time, the difference between the stock market price and the negotiated price of the stock is 50 yuan, the option fee is deducted by 10 yuan, and the profit per share is 40 yuan (the broker's commission and other expenses are not included for the time being). 100 shares can make a profit of 4,000 yuan. In addition, because the option is transferable to the buyer, if the stock market is bearish, causing the option premium to rise, the customer can directly sell the option, so that he not only earns the difference between the premium before and after the option premium, but also It also transferred the risk of a sudden rebound in the stock market. However, if the stock market maintains the level of 100 yuan per share in these two months, there is no decline, and even gradually rises. At this time, the customer exercises the option, sells the stock or transfers the option. There is also a loss of option premiums. Therefore, sell options are generally only used when the stock market is bearish. ^[1]

Put option

Put options are also known as "put options", "sell options" or "knock out", and the symmetry of call options, one of the types of options trading, will be sold at a specified price and quantity on a certain day or in a certain period in the future. The right to produce some kind of securities. After purchasing a sell option, a customer has the right to sell certain securities to the seller of the "sell option" at the price and quantity stipulated in the contract within a specified date or period. The scope of its use, generally speaking, people are willing to buy and sell options only when there is a downward trend in the securities market. Because, during the validity period of the sold option, the buyer can only make a profit by exercising the option after the price of the securities has fallen to a certain extent. For example, a customer buys a stock option with a validity period of 2 months, an agreed price of 100 yuan per share, a quantity of 100 shares, and an option fee of 10 yuan per share. In these 2 months, if the stock price drops to 50 yuan per share, the customer exercises the option to sell the stock. At this time, the difference between the stock market price and the negotiated price of the stock is 50 yuan, the option fee is deducted by 10 yuan, and the profit per share is 40 yuan (the broker's commission and other expenses are not included for the time being). 100 shares can make a profit of 4,000 yuan. In addition, because the option is transferable to the buyer, if the stock market is bearish, causing the option premium to rise, the customer can directly sell the option, so that he not only earns the difference between the premium before and after the option premium, but also It also transferred the risk of a sudden rebound in the stock market. However, if the stock market maintains the level of 100 yuan per share in these two months, there is no decline, and even gradually rises. At this time, the customer exercises the option, sells the stock or transfers the option. There is also a loss of option premiums. Therefore, sell options are generally only used when the stock market is bearish. ^[1]

If the future

Bearish

BS model is

Example: January 1,

Bullish bearish

To simplify the argument, only one

Put option to sell put option

You can sell put options on any day before the expiration date

Put Option with Exercise Price of 98

. If the market value of the underlying stock falls below the strike price, the value of the puts you buy will increase and it will be profitable to sell the puts. Because the value of time will decrease during the holding period, buying put options just for short-term benefits is a highly speculative strategy. If there are any other reasons behind the decision, it is unlikely that it will be possible to make a profit simply by continuously buying puts. For example, if you think that the stocks in your portfolio are overbought and you want to keep your book profit, buying puts can be used as an insurance to protect your stock position.

Put option expires

If you do nothing before the option expires, the put option you buy will become worthless and you will lose all the premium you paid previously. When you buy a put option, you make a profit if and only if the market value of the underlying stock falls. If the value of the stock remains at or above the strike price level, your put option is not profitable. Even if the stock drops a few points, the put option loses its time value as the expiration date approaches. Therefore, in order to maintain profits, you need the stock to fall enough points before the expiration to offset your original cost, and replace the time with the intrinsic value. value.

Put exercise

If the current market value is much lower than your put option strike price, you have the right to sell your 100 shares at the higher strike price. If you hold stocks and buy put options to protect against the risk of a fall, put option exercise can be a wise exit strategy. For example, if you think a stock looks like a long-term potential stock at first, you buy some stocks, but the financial situation changes later. If you have 1 corresponding put option for every 100 shares, then the put option is fulfilled, and selling the stock will keep your book profit, thereby releasing your long position in the stock.