The Selling Index Puts is a strategy for hedging index positions when the investor generally assumes an upward trend. With the put-warrant-warrants, he will, in principle, only insure himself against a possible setback on the market. If the index price ends at a higher value its click now than the purchase price, the put options can also expire worthless without jeopardizing the overall success of the strategy. The Selling Index Puts strategy was developed around the middle of the 20th century on the basis of the price trend of classic warrants.
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Selling index puts are used by traders as an alternative to CFDs or knock-outs. It is only important that the Selling Index Puts in the portfolio as a whole have a lower weight than the actual main position. Otherwise, the approach is rather an individual taste question. However, it should be borne in mind that a selling put index is more difficult to calculate than a knock-out or a CFD that click this can goes with the price 1: 1.
How Selling Index Puts work
In the case of classic warrants, Selling Index Puts function as follows: The trader increases to a long position in the index. It can choose a position from knock-outs as well as CFDs or a futures position that is highly capitalized. In addition, he posts a put option. This has the advantage that it will not be worthless until the end of the term, no matter how the course of the Underlyings develops.
The investor can therefore put the now click here for info put option on hold and, if necessary, sell it at a profit if its long position falls into a share price. However, if the index price rises without setbacks, the investor simply forfeits the put option without worthlessness. Finally, he earns a lot in the long position. However, he could still provide this alternative with a stop feature to secure possible profits and then follow the Selling Index Puts strategy.
Keep track of price decreases
In the rareest case, there is an increase in the index price without setbacks, as a rule the investor must always come previous expect a price decline. This will have a negative effect on classic options with a time value decline, since the index price may fall below the respective initial value, while the value of the put will also be impaired. Those who want to hedge against this should therefore choose classic warrants that have a very long term. At the end of the term, it falls short of the market value. As an alternative, the booking of a binary option with a return of at least 70 percent in the case of a drop in prices is just as much a weighted CFD or knock-out position. In addition, bold investors can also book the long-term position anticyclically more about the author that and minimize their risk with additional selling index puts.
If the long position is already in the profit, the Selling Index Put can be meaningless. Because the investor risks the loss of the put position, while the call position is already in the plus, which he can expand even further after the stopping of the stops. In the case of a severe setback, this that however, a profit can be realized by selling index puts, while the profit stops of the long positions are placed with a sufficiently comfortable distance.
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The advantages and disadvantages of this strategy
The great strength of the selling index Puts is that a very how much is yours worth? he large hedge is possible as soon as it enters into the respective index long position. Classic warrants are even excellent because they can be booked very cheaply – whenever they run out of money. Investors can, for example, select classic warrants for a few cents and calculate a price reversal scenario of 200 or more points.