: A protective put
is simply a long put that is combined with the underlying asset.
Buying protective put
options provides a way to absolutely limit your downside risk on a stock for the length of the contract in exchange for payment of an up-front cash premium.
A protective put
is the simultaneous purchase of a stock and a corresponding put option or the purchase of a put related to a stock the investor already owns.
With the protective put
option, the market price of the put is similar to the premium on a traditional insurance policy.
The demand for protective puts
has also been turned higher - though volatility here is masking the general trend towards safe guarding positions.
In a series of 73 brief and completely updated essays Chance gets both beginners and veterans through definitions of derivatives and their markets (including a brief history), basic instruments (including swaps and interest rate derivatives), derivative pricing (including forward and futures pricing and option pricing), derivative strategies (including protective puts
and hedge funds), exotic instruments (including a range of options), fixed income securities and derivatives, and related topics such as stock options, stock as an option, the credit risk of derivatives, risk management, and best and worst practices.
To protect themselves, investors are buying protective puts
on Tyson Foods shares.
As for the directional put-call ratio, the rabid buying of protective puts
was snuffed out as the investors' fears calmed with time producing no major reversals from the Dow 30 and other indexes.
What's more, risk reversals for the proxy carry pair (USDJPY) show traders are once again paying a higher premium for directional calls and less for protective puts
- an indication of risk and direction.