PUTS VERTICAL Meaning and
Definition
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A puts vertical, also known as a put vertical spread or a bear put spread, is a commonly used options trading strategy. It involves the simultaneous purchase and sale of put options with different strike prices but the same expiration date, resulting in a net debit to the trader's account.
In a puts vertical, the trader typically buys a put option with a higher strike price and sells a put option with a lower strike price. The goal of this strategy is to profit from a decline in the underlying asset's price. If the price of the underlying asset decreases, the value of the higher strike put option will increase, while the value of the lower strike put option will decrease. The trader's profit potential is limited to the difference in strike prices minus the initial debit paid.
This strategy is called a "vertical" spread because the options have the same expiration date but differ in strike prices. By combining these options, the trader creates a vertical structure on the options chain.
A puts vertical is considered a bearish strategy because the trader hopes for a downward movement in the price of the underlying asset. It is a limited-risk strategy as the maximum loss is capped at the initial debit paid. Traders often use puts verticals to hedge their existing positions or to speculate on short-term downward price movements in a particular asset.
Common Misspellings for PUTS VERTICAL
- outs vertical
- luts vertical
- -uts vertical
- 0uts vertical
- pyts vertical
- phts vertical
- pjts vertical
- pits vertical
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