Back To Optiontradingpedia.com Answers

"Is Writing Put Options Speculating or Hedging?"



Question By Mary

"Is Writing Put Options Speculating or Hedging?"

When I write (Sell To Open) put options, am I considered to be speculating or hedging?

Asked on 14 Oct 2010

explosive option trading mentor Explosive Options Mentoring Course
Find Out How My Students Make Over 40% Profit Per Trade Consistently Through Options Trading In The US Market Even During An Economic Downturn!



Answered by Mr. OppiE

Hi Mary,

Options are extremely versatile trading instruments. In fact, options could be the most versatile derivative instrument ever created. As such, when you write put options, it could be both for the purpose of speculation or hedging depending on how you do it.

Writing put options are speculative when you write put options with the intention to profit when the underlying stock remains stagnant or moves upwards. There are no other trades or positions for which you are writing these put options on. When you write put options, you profit when the underlying stock eventually close higher than the strike price of the put options written by expiration. This will allow the put options to expire out of the money reaping you the premium as profit.

For instance, if you write AAPL's $200 put options for $10, you will make that full $10 as profit if AAPL close higher than $200 by expiration of the put options. This is known as a Naked Put Write strategy.

Writing put options are hedging when you write put options in order to protect existing stock or options positions. Writing put options gives you positive delta and can therefore be used for protecting any negative delta positions such as a short stock, long put or short call position.

For instance, if you are long AAPL's $200 put options and you wish to partially hedge this position, you could write further out of the money put options on top of this position in order to transform it into a Bear Put Spread position.


In conclusion, whether writing put options is speculative or hedging depends on the purpose for which you are writing those put options. Such is the versatility of options trading and is why a comprehensive understanding of options before you try trading them is critical.




Response by Mary...


Reply by Mr. OppiE...



Response by Others...




Add Your Response Here



Continue your journey of discovery...
Click Me For Content Index
Click Above For Content Index

Have a Suggestion?

Put Options
Options Strategies
Stock Options
Options Trading
Options Trading EBooks



Back To Answers Main | Go To Option Trader's HQ

 


Important Disclaimer: Options involve risk and are not suitable for all investors. Data and information is provided for informational purposes only, and is not intended for trading purposes. Neither optiontradingpedia.com, mastersoequity.com nor any of its data or content providers shall be liable for any errors, omissions, or delays in the content, or for any actions taken in reliance thereon. Data is deemed accurate but is not warranted or guaranteed. optiontradinpedia.com and mastersoequity.com are not a registered broker-dealer and does not endorse or recommend the services of any brokerage company. The brokerage company you select is solely responsible for its services to you. By accessing, viewing, or using this site in any way, you agree to be bound by the above conditions and disclaimers found on this site.

Copyright Warning: All contents and information presented here in optiontradingpedia.com are property of Optiontradingpedia.com and are not to be copied, redistributed or downloaded in any ways unless in accordance with our quoting policy. We have a comprehensive system to detect plagiarism and will take legal action against any individuals, websites or companies involved. We Take Our Copyright VERY Seriously!

Site Authored by