In the financial markets, in order to cope with the risk of a sharp decline, many investors have turned to a widely mentioned financial instrument - put option.
Let's take a brief look at the concept of a put option.
An option is a financial instrument that gives the holder the right, but not mandatory, to buy or ** an asset for a specific period of time in the future. Here, there are two key concepts to note:
1.Future: The right granted by an option can only be exercised at a certain point in the future, hence the term option.
2.Rights: Option holders have the right to choose whether or not to exercise the option, which is a kind of flexibility for the option.
Why are the two definitions of future and rights so critical? Because the risk of a sharp decline that we need to face is uncertain. This means that this risk may or may not happen in the future. If a big dip occurs, we can reduce the loss by exercising the option; But if it doesn't, then the option may have no value.
Logically, options are similar to insurance, in that they are essentially dealing with uncertain risks in the future. Just like insurance, options can be seen as "wasteful" when unexpected events don't occur. Its value is mainly reflected in the response to adverse conditions such as market crashes.
Like insurance, options come with a fee. Just as we need to pay a premium to buy insurance, we also need to pay a fee to buy an option. Options also have an expiration date, after which they become invalid. On top of that, the options market is also a zero-sum game. This means that the sum of the profits of the buyer and the seller is zero, and either the seller makes money or the buyer makes money, and it is impossible for both parties to make money at the same time.
As a financial tool, options can help investors reduce losses in the face of the risk of sharp declines, providing a flexible and effective means of hedging.
Option sauce collated and released.
Investors who want to make a profit by buying put options need to meet two key conditions:
1.*Over option fees.
2.*Occurs during the life of the option.
Note that if there is no or insufficient amplitude during the validity of the option, how should investors respond? The answer can only be to buy new options to ensure that the investment risks are insured for some time to come.
For example, let's say an investor buys a SSE 50 ETF** for a long time. During this period, if investors are worried that the market may fall sharply, they decide to use put options to hedge their investment risk. As a result, he needs to buy multiple SSE 50 ETF put options. Whenever an option expires, a new option needs to be purchased. This ensures that the portfolio is effectively insured in the event of a crash.
By purchasing multiple options, investors can protect their portfolios on an ongoing basis and reduce the risk of market volatility. This strategy can provide investors with an extra layer of security, allowing them to hold long-term investments with greater confidence and reduce losses in the event of unexpected market conditions. Options