PUT SPREAD Meaning and
Definition
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A put spread is a financial options strategy that involves simultaneously buying and selling put options on the same underlying asset, but with different strike prices. It is a commonly used strategy to profit from a decline in the price of the underlying asset, typically a stock or an index.
In a put spread, the investor buys a put option with a lower strike price and sells a put option with a higher strike price. The put option with the lower strike price provides downside protection as it gives the investor the right to sell the underlying asset at a higher price, while the put option with the higher strike price is sold to generate income and reduce the cost of the overall position.
The difference in strike prices between the two put options is known as the spread. The wider the spread, the higher the potential profit, but also the higher the risk.
The maximum profit potential of a put spread is the difference between the strike prices, minus the cost of entering the position. The maximum loss is limited to the cost of the put spread. The breakeven point is the price at which the underlying asset needs to fall in order for the position to be profitable.
Put spreads are commonly used by investors who have a bearish outlook on the underlying asset but want to limit their risk exposure. It allows them to profit from a decline in price while having a capped downside risk.
Common Misspellings for PUT SPREAD
- lut spread
- 0ut spread
- pyt spread
- pht spread
- pjt spread
- pit spread
- p8t spread
- p7t spread
- pur spread
- puf spread
- pug spread
- puy spread
- pu6 spread
- pu5 spread
- put apread
- put zpread
- put xpread
- put dpread
- put epread
- put wpread
Etymology of PUT SPREAD
The word "put spread" does not have a specific etymology as it is a financial term used in options trading. It is a combination of two words: "put" and "spread".
- "Put" refers to a type of financial derivative known as a put option. It gives the option holder the right, but not the obligation, to sell an underlying asset at a predetermined price within a specific timeframe. It is commonly used by investors as a way to protect against potential price declines in the underlying asset or to speculate on its decrease in value.
- "Spread" refers to a trading strategy where an investor simultaneously buys and sells options (calls or puts) on the same underlying asset but with different strike prices or expiration dates. The purpose is to limit risk or potentially profit from the price difference between the two options.
Similar spelling words for PUT SPREAD
- bed spread,
- bid/ask spread,
- body support,
- bid/offer spread,
- pete seibert,
- spread bet,
- sport bat,
- support boat,
- bed support,
- bud sport,
- bad spirit,
- bud support,
- spirit body,
- bid-offer spread.
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