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Bear Put Spread strategy

Bear Put Spread strategy

A bear put spread is an options strategy, it is assumed in the from the assumption that the value of the underlying stock could fall. The trader buys so at any given time put options on these shares with the eventual target, the shares cheapened later to buy and in the meantime to earn the money put option. The risk is that the shares until the exercise date of the option could not continue to fall and the put option it will expire worthless. The sale of the share has, however, hedging with this strategy is a valid approach to binary options.

Binary-webArrow Green using a Bear put spreads
The Bear Put Spread is used when either

1. is speculated generally on a decline in prices of shares or
2. the shares are already being held and a hedge against possible price decreases to be introduced or
3. a cheaper purchase of additional shares is planned for a price drop.

Only the second case would be classic hedging, in the variants 1 and 3 is the trader free to decide whether he should ever buy a put option. In the first case is an ordinary speculation, in the case 3. It is therefore regularly that the dealer is actually on the stock, but initially expected a decline. The two versions 2 and 3 are ambivalent, especially the third case, after all, is a trader on the stock in the expectation that increases their price.

Arrow green profit opportunities and risks

If the share price actually decline, gaining the trader to the put option, but loses in the second scenario, the stock price, since it holds the shares already. He is probably best neutral out of the race, but has at least insured against losses. In cases 1 and 3, he could pocket the profit of the put option and completely forego the purchase of shares, which was, however, originally planned in the third case. This scenario is therefore reconsidered at the time of option expiration. The advantage of the strategy would in fact falling share price in the decision possibility for the trader, which increases by the Bear put spread as with any hedging.

If the share price rises , loses the put , the trader wins only if he holds the shares already . This would be for the scenario 2. advantageous ( the Bear Put Spread is only purchased after the dealer already owns the stock ) . At this assessment the dilemma each hedging is recognized : Insurance against loss always means limiting the gains and at worst even greater losses . This would namely result if the Bear put spread was bought in anticipation of a declining rate , because the traders want to own the stock eventually . Maybe he decides later to buy these nevertheless increased at a price , but he has simultaneously lost the Bear Put Spread .

Hedging with warrants is always difficult to predict due to the complex structure of these bills . Hedging for binary options is much easier. The forecasts must run against each other , with brokers with loss protection but you can certainly take interesting gains via a combination as profit margin and loss protection Online Scam.