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What is a cash-covered put?
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Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. An options chain, also known as an option matrix, is a listing of all available options contracts for a given security. It shows all listed puts , calls, their expiration, strike prices, and volume and pricing information for a single underlying asset within a given maturity period.

The chain will typically be categorized by expiration date and segmented by calls vs. An options chain provides detailed quote and price information and should not be confused with an options series or cycle, which instead simply denotes the available strike prices or expiration dates. Option chains are probably the most natural form of presenting information for retail investors. The option quotes are listed in an easy-to-understand sequence. Traders can find an option premium by following the corresponding maturity dates and strike prices.

Depending on the presentation of the data, bid-ask quotes, or mid-quotes, are also displayable within an option chain. The majority of online brokers and stock trading platforms display option quotes in the form of an option chain using real-time or delayed data. The chain display allows quick scanning of activity, open interest, and price changes. This is how a bear put spread is constructed. A protective collar strategy is performed by purchasing an out-of-the-money put option and simultaneously writing an out-of-the-money call option.

The underlying asset and the expiration date must be the same. This strategy is often used by investors after a long position in a stock has experienced substantial gains. This allows investors to have downside protection as the long put helps lock in the potential sale price. However, the trade-off is that they may be obligated to sell shares at a higher price, thereby forgoing the possibility for further profits. This is a neutral trade set-up, which means that the investor is protected in the event of a falling stock. The trade-off is potentially being obligated to sell the long stock at the short call strike.

However, the investor will likely be happy to do this because they have already experienced gains in the underlying shares. A long straddle options strategy occurs when an investor simultaneously purchases a call and put option on the same underlying asset with the same strike price and expiration date.


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An investor will often use this strategy when they believe the price of the underlying asset will move significantly out of a specific range, but they are unsure of which direction the move will take. Theoretically, this strategy allows the investor to have the opportunity for unlimited gains. At the same time, the maximum loss this investor can experience is limited to the cost of both options contracts combined.

This strategy becomes profitable when the stock makes a large move in one direction or the other. In a long strangle options strategy, the investor purchases an out-of-the-money call option and an out-of-the-money put option simultaneously on the same underlying asset with the same expiration date. An investor who uses this strategy believes the underlying asset's price will experience a very large movement but is unsure of which direction the move will take.

For example, this strategy could be a wager on news from an earnings release for a company or an event related to a Food and Drug Administration FDA approval for a pharmaceutical stock. Losses are limited to the costs—the premium spent—for both options. Strangles will almost always be less expensive than straddles because the options purchased are out-of-the-money options.

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This strategy becomes profitable when the stock makes a very large move in one direction or the other. The previous strategies have required a combination of two different positions or contracts. In a long butterfly spread using call options, an investor will combine both a bull spread strategy and a bear spread strategy. They will also use three different strike prices.

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All options are for the same underlying asset and expiration date. For example, a long butterfly spread can be constructed by purchasing one in-the-money call option at a lower strike price, while also selling two at-the-money call options and buying one out-of-the-money call option. A balanced butterfly spread will have the same wing widths. An investor would enter into a long butterfly call spread when they think the stock will not move much before expiration.

The maximum loss occurs when the stock settles at the lower strike or below or if the stock settles at or above the higher strike call. This strategy has both limited upside and limited downside.

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In the iron condor strategy, the investor simultaneously holds a bull put spread and a bear call spread. The iron condor is constructed by selling one out-of-the-money put and buying one out-of-the-money put of a lower strike—a bull put spread—and selling one out-of-the-money call and buying one out-of-the-money call of a higher strike—a bear call spread.

All options have the same expiration date and are on the same underlying asset.


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Typically, the put and call sides have the same spread width. This trading strategy earns a net premium on the structure and is designed to take advantage of a stock experiencing low volatility. Many traders use this strategy for its perceived high probability of earning a small amount of premium. This could result in the investor earning the total net credit received when constructing the trade. The further away the stock moves through the short strikes—lower for the put and higher for the call—the greater the loss up to the maximum loss. Maximum loss is usually significantly higher than the maximum gain.

This intuitively makes sense, given that there is a higher probability of the structure finishing with a small gain. In the iron butterfly strategy, an investor will sell an at-the-money put and buy an out-of-the-money put. At the same time, they will also sell an at-the-money call and buy an out-of-the-money call. Although this strategy is similar to a butterfly spread , it uses both calls and puts as opposed to one or the other.

It is common to have the same width for both spreads.

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If the stock drops below the strike, the put may be assigned. That would allow the put writer to buy the stock at the strike price. The effective purchase would be even lower: strike price less the premium received. There are two principal risks. First, the stock might not only dip but plummet well below the strike price. The investor must be comfortable with the strike price as an acceptable long-term acquisition price, no matter how low the market goes. Net Position at expiration. Second, by waiting for a price dip, the investor risks missing out on a stock that keeps climbing upward.

The choices then include repeating the short put strategy possibly at a higher strike price , or closing out and buying the stock outright, or simply accepting that this winner 'got away. If things go as hoped, it allows an investor to buy the stock at a price below its current market value. The investor must be prepared for the possibility that the put won't be assigned. In that case, the investor simply keeps the premium received for selling the put option.

This is primarily a stock acquisition strategy for a price-sensitive investor. Unlike a naked put writer whose only goal is to collect premium income, a cash-secured put writer actually wants to acquire the underlying stock via assignment. The strike price, less the premium received, represents a desirable purchase price. However, the put assignment is not guaranteed. Should the stock price remain above the strike during the life of the option, the investor will miss out on the stock purchase.

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The consolation would be pocketing the premium received for the put. If the investor is intent on acquiring the stock and is less concerned about price, there are other strategy choices worth considering. A cash-secured put is a variation on the naked put strategy. The main difference is that the cash-secured put writer has set aside the funds for buying the stock in the event it is assigned and views assignment as a positive outcome.

In contrast, the naked put writer hopes that the put will keep losing value so the position won't be assigned and can be closed out early at a profit. This investor would have to liquidate other assets quickly, or borrow cash, to be able to honor an assignment notice.