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Strategy View
Investor is certain that the market will not go down, but unsure / unconcerned
about whether it will rise.
Strategy Implementation
Put options are sold with a strike price a.
If an investor is very bullish, then in-the-money
puts would be sold.
Upside Potential
Profit potential is limited to the premium received. The more the option
is in-the-money, the greater the premium received.
Break-Even Point at Expire
Strike price less premium.
Downside Risk
Almost unlimited ("almost" as the underlying price can not fall
below zero). Selling puts is a high-risk strategy because of huge potential
losses in a draw down or market crash. A more cautious approach to put
sales is a bull spread that utilizes puts.
Margin
Always required.
Comment
In a neutral market, shorting puts can offset losses. A put gains value
as time decays. |
