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Covered put
       
 
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Covered put

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Covered put
To sell a put Option while holding Cash. This technique is used to increase income by receiving Option Premium. If the market goes down and the Option is exercised, the Cash can be used to buy the Underlying to cover. Covered put writing is often used as a way of target buying: if an investor has a Target price at which he wants to buy, he can set the Strike Price of the Option at that level and receive Option Premium to increase the Yield of the asset. Investors also sell covered puts if markets have fallen rapidly but seem to have bottomed, because of the High Volatility typically received on the Option.

See also Covered call
Posted by  Privatebanking.com
 
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