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Portfolio insurance using put options for income


Portfolio insurance using put options for income


This article does not cite any sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (October 2015) ( Learn how portfolio insurance using put options for income when to remove this template message)Portfolio insurance is a method of hedging a portfolio of stocks against the market risk by short selling stock index futures.This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile.

Short selling index futures can offset any downturns, but it also hinders any gains.Portfolio insurance is an investment strategy where various financial instruments such as equities and debts and derivatives are combined in such a way that degradation of portfolio value is protected. It is a dynamic hedging strategy which uses stock index futures. It is almost impossible to hedge with a just-in-time approach.For this reason, many investors look for more long-lasting forms of portfolio insurance—protection you can put in place and leave alone.

The big problem with these long-term hedges is that they tend to be expensive. For example, a put option on. In terms of their function and their price movements, puts are essentially the opposite of calls. When the price of the underlying equity begins to fall, the value of a put option on that stock will begin to rise. Often brokers will provide the ability to write covered calls and to use married puts when you open your options account.

This article will focus on the function of married puts in a portfolio or as part of a trading strategy. (To read more, see Come One, Come All - Covered Calls.)Tutorial: Options BasicsMarried puts refer to the combination of two different purchases: one of a stock position and one of a put option. ImplementationTo insure a portfolio with index puts, we need to first select an index with a high correlation to the portfolio we wish to protect.




Using income for insurance portfolio put options

Portfolio insurance using put options for income

Portfolio insurance using put options for income