The Joy Of Put Options

by Guest on September 17, 2015

what is growth and value investingDo you want to have a reason to rejoice over a declining market, index, or asset? You can when you use put options. A form of binary options trading, put options can be used as part of an overarching strategy for success. They allow you to use your market or asset analysis to make a bet on a specific asset to decline in value.

As a simple example, you follow some of the top firms in a specific industry. You invest according to the news you follow. One morning you hear that a major player in this industry has suffered some sort of calamity and that they are going to make some announcements about this in the coming days. You already know, like the rest of the world, that it is likely that the company’s value will decline and their shares will also drop in price.

So, why not use your attention to the news to profit financially? When you use binary options, and put options specifically, you can benefit from the information.

Put Options Explained

Known as a high/low option, this method of trading does not have the same rewarding payouts as touch options and boundary options, but it is a wonderful way to earn great returns on solid predictions.

Now, we just used the term “solid predictions” and that is important. Never enter a put position based on pure guesswork. Instead, choose the put option when your analysis and tracking have indicated that a downward trend in any asset is about to occur. Many experts leverage their knowledge in put options, but do so based on their specific experience. For example, Forex traders can boost earnings through the use of well-leveraged put options trades. The same goes for traditional stock market investors who can amp up their returns when they are selling to reduce losses.

Knowing When to Invest in Put Options

As one expert said, the right time to invest in binary put options is when you would also purchase put options on any asset. In other words, “they are bought when you are bearish on the underlying asset.” (OptionTrainingPedia). It is not as profitable as a plain vanilla option because your return doesn’t grow along with the decline below the original or strike price, but it does give you a fixed return if your analysis is correct.

There are further details about binary put options, including the two varieties commonly found. You can find “cash or nothing” options and “asset or nothing” options. The cash or nothing pays out a set amount only if the price goes beneath the strike price. The asset or nothing put option is one that is fixed at the asset’s price only if the price declines below that strike price.

Know what sort of binary put option you are choosing to be sure it is the right one for your goals. There is a substantial difference between the two varieties above, and you want to be clear about your choice to get the best returns.

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