PUTS PROPORTION Meaning and
Definition
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"Puts proportion" is a term used in finance to describe a particular options trading strategy where an investor sells a put option and simultaneously buys a different put option with a lower strike price. This strategy is also known as a bear spread or a debit put spread.
In this strategy, the investor is bearish on the underlying asset and expects a decrease in its price. By selling a put option with a higher strike price, the investor receives a premium upfront. This put option obligates them to buy the underlying asset at the strike price if the option is exercised by the counterparty. To limit their potential losses, the investor also purchases a put option with a lower strike price. This option gives them the right to sell the underlying asset at the lower strike price, which allows them to profit from a decline in the asset's value.
The "puts proportion" strategy allows the investor to limit their potential losses while still participating in a bearish market outlook. The difference in strike prices between the two options determines the potential profit of the strategy. The investor's maximum profit is the difference between the two strike prices minus the initial premium paid. However, if there is a large decrease in the asset's value, the investor may realize a higher profit than the maximum. Conversely, if the asset remains stable or increases in value, the investor may lose the premium paid for the put options.
Common Misspellings for PUTS PROPORTION
- outs proportion
- luts proportion
- -uts proportion
- 0uts proportion
- pyts proportion
- phts proportion
- pjts proportion
- pits proportion
- p8ts proportion
- p7ts proportion
- purs proportion
- pufs proportion
- pugs proportion
- puys proportion
- pu6s proportion
- pu5s proportion
- puta proportion
- putz proportion
- putx proportion
