Hi everyone, So this is my first year learning about derivatives in finance, and how they work and such. My question is this, since there is a ban on shorting, are people using Put options to make a profit? At least, are they trying to? For example, Apple dropped like 18%, and most other stocks are dropping like 8-15% easily. How does it work. I have never traded before anything other than mutual funds for a bank but can you buy put options or are the premiums so high that it wouldnt be worth it? I just want to know how are derivative companies making money off of this if at all. Thanks for any responses.
you pay a premium to buy an option you collect a premium when you sell an option this is all explained pretty well in the CFA level 1 curriculum
Exept the part where people who buy put options don’t understand that they are doing something unpatriotic and ought to go to Gitmo.
JoeyDVivre Wrote: ------------------------------------------------------- > Exept the part where people who buy put options > don’t understand that they are doing something > unpatriotic and ought to go to Gitmo. ye and get “exposed”
supersharpshooter Wrote: ------------------------------------------------------- > you pay a premium to buy an option > > you collect a premium when you sell an option > > this is all explained pretty well in the CFA level > 1 curriculum SWEET thank you for telling me this… Gee mister, you must know alot!!! woohoo! So anyways, Let me dumb my question down a bit. Since i have no trading experience, is buying put options and other derivatives what seasoned traders are doing now with this market? How are they achieving arbitrage if any?
C Oct 17.5 Puts are trading at $1.44 – go get em.
Yes, people are trading/using enormous amounts of put options. I don’t believe you can exercise a put option right now because of the ban but you can open as many long put contracts as you want. I wouldn’t say “derivative companies” but rather individuals and hedge funds are the ones writing the contracts that you are buying. Generally speaking the writer of the contract believes the market or a single stock is going to move one way and you, the option contract buyer, believes that its going the other way. Historically, something like 70+% of all options written expire out of the money. It’s kind of like insurance underwriting. You wouldn’t want to insure a single town but diversify your risk over the entire state or country. Usually you want to buy long options when the market is very volatile like it is now even though the premiums are higher. The writer of the option contract is taking more risk but stands to receive a larger premium because of wild price movements. Go take a look at investopedia.com and read about the .VIX index and what it calculates.
Sweet chuck, that website was really insightful, i was actually wondering myself how volatility was calculated. And thus, ends my quest for knowledge in this topic. thanks all.
Chuckrox8 Wrote: ------------------------------------------------------- > I don’t believe you can exercise a > put option right now because of the ban but you > can open as many long put contracts as you want. I don’t see why not - If I own a put on C and want to exercise it, I just buy C in the market then exercise the put. There’s no shorting involved there. In the UK it doesn’t matter what instrument you use - if you create a short delta interest in a company, you go to Belmarsh (UK Gitmo, but with laws and stuff).
Right - the short sale rule doesn’t directly affect options markets. It will be interesting when this whole thing is done to see what effect it had on option vol.