What Is a Put on a Put?

A put on a put is an options contract that gives the holder the right to sell an underlying put options contract. The put on a put trade is one of four types of 澳洲幸运5官方开奖结果体彩网:compound options.

Essentia✤lly, a put on a put option is an option to sell an option. The underlying asset of the put on a put option is the original option. Put on a put options are mo🦋re common on European exchanges than in the United States.

Put on a Put Explained

The buyer of a put option is a trader who expects the asset upon which the option is based to fall in price. The trader purchases a put option, usually for 100 shares, that allows the shares to be sold at a certain price (the 澳洲幸运5官方开奖结果体彩网:strike price) by a specified 澳洲幸运5官方开奖结果体彩网:expiration date. If the trader is correct and the asset falls, the option is 澳洲幸运5官方开奖结果体彩网:in the money and can be 𓂃exercised, with the trader profiting from the differꦺence between the option price and the market price.

A put on a put option involves two put options, one over the other. A put on a put has two strike prices and two expiration dates. One is for the compound put option and the other is for the underlying 澳洲幸运5官方开奖结果体彩网:vanilla option.

Note that compound options are more common in Europe, and 澳洲幸运5官方开奖结果体彩网:European options can be exercised only on the expiration date. An 澳洲幸运5官方开奖结果体彩网:American option can be exercised on or anytime before the dat🍌e of expiration.

Since one of the variables that determine the cost of an option is the price of the underlying asset, the co🐓st of a put on a put option will generally be lower than the cost of a vanilla put on the corresponding asset. Thus, it can provide some leverage to the options trader.

When to Use a Put on a Put

A put on a put option is used when a trader wants to employ leverage. The trader will also be moderately bullish on the underlying a♐sset. The value of a put on a put changes in direct proportion to the price of the underlying asset. This means the value increases as the asset price increases, and decreases as the asset price decreases.

Other Compound Options

The other three types of compound options are:

• Call on a put: This is a call option on an underlying put option. The owner who exercises the call option receives a put option.
• Call on a call: In this option, the investor buys another call option with customized provisions. These provisions include the right to buy a plain vanilla call option on an underlying security.
• Put on a call: The investor must deliver the underlying call option to the seller and collect a premium based on the strike price of the overlying put option.

These options ꦗare also known as split-fee options.