The goal of this strategy is to implement hedging according to the market. If a share position is set to rise, this is hedged by an opposing put option. Thus, if the share price falls experienced and unexpectedly, the put options bought by the trader bring their return into account, so that the loss in the value of the share package is compensated for. In the ideal case, the put options even generate a profit. If the price increases, but hedging is not to be canceled, the bull put spread strategy is applied.
Strategic approach an check my blog of the bull put spread option
As the share price increases, the shares gain in value, while the put options lose value. This is the desired scenario when purchasing the share position. The "old" put options are sold and new, more expensive options are purchased which are even longer to counteract the general decline in the options. The amount to be applied for this purpose is covered by the value gain of the share package.
If the browse around these guys day reverse case occurs, the stock price falls, the value put put options can be sold and replaced with less expensive ones. As a result, the loss of the share value is then compensated for. If the price increases again, the more favorable put options expire, but the share package and the put options put forward are still gaining. The right approach is important in this strategy by balancing equities position and put options until a clear trend there click reference becomes visible.
Advantages and disadvantages of this strategy
The possibility of hedging a share position using put options is particularly advantageous. Since a share is hardly likely to be worthless, this is also a very safe method. In the binary area, only shares of larger companies are traded as underlyings, so that a complete insolvency of these can almost be ruled out.
The value of the share is protected by the bull put spread, even in the case of a short-term value breaker. Therefore, this strategy is particularly valuable for markets whose potential the trader is in principle convinced. that her comment is here
For example, German solar plants are at the forefront, which have lost further value in want on bing 2012 due to international competition. However, this is a future-oriented industry, so that a further value gain is to be expected. The bull-put spread strategy helps to hold on to these shares.
Graph: Bull Put Spread Strategy:
The disadvantages are due to the difficult management as with all hedging strategies, since the value trend can hardly be predicted in the case of warrants. Since these do not represent the market trend to scale, the trader speculates in several directions. It can not predict whether the stock price her go will not lose more value than the option will win. In addition, there is the time value decline of the warrants, since the timing of the prices is also difficult to predict. The objection that these factors can be minimized by the use of CFDs or knockouts is only halfway basics day correct, since the hedges have to be constantly replaced due to the K.O. thresholds, which means that many fees have to be paid.
In addition, limited profits must be taken by the loss hedges, so the capital curve is smoothed out in its extremes. If the stockpile is to be held for a long time, this is of course not so dramatic. Such disadvantages can ultimately result from the use of binary options