In summary, this is a strategy in which the trader uses the put options to hedge the trade in value against a 24option price drop. Thus, this strategy is a permanent hedging instrument, as the put options are renewed on a monthly basis.
Advantages and disadvantages of this strategy
The most obvious advantage is the hedging of the capital: if he loses traders with the money money, as their prices fall, he wins the put option. As a result, the loss is reduced, possibly even compensated. However, Social Trading it is disadvantageous that an index does not have a limit downwards and thus constitutes a bottomless pit. However, the profit of the put option is fixed and limited in advance. As with most hedging strategies, only small portions of capital are hedged.
Often, the trader is still counted on the advantages that the trader receives on the course of such options, but this is hardly the case from an objective IQ Option point of view. The price development of options is often not such as, e.g. According to the Black-Scholes model. anyoption However, the Selling Index Puts strategy is an important tool which, when used in the prevailing conditions, contributes to the success of the trade. It is sometimes the most difficult decision of the investor to assess whether the circumstances allow an application of the strategy.
Basic rules for the Selling Index Puts strategy
Many traders tend to be tempted to go from supposedly safe hedging strategies to more frequent action. However, this is very dangerous and justifies the first basic etoro rule for the application of the strategy: There should be little trading and the fees for the broker should be as low as possible. The latter is particularly important, since it is calculated to lose options and to buy them more frequently, in order to maintain the security. Added to this is the amount of the slight difference between plus500 buying and selling papers.
In addition, of course, a page, the hedge or the securities can be repurchased prematurely and thus speculated on their profit. Of course, the fuse is completely lost. If the trader then sees potential for a hedge again and buys a warrant, the price can nevertheless reverse again, which would require an option for the counter position. This back and forth can be repeated as often as required. In the end, Copy Trading however, it is the broker who laughs last and looks forward to his cumulative growth.
The second principle can also be derived from this: The Selling Index Puts strategy only works with a so understanding constant speculation on a price direction. Everything else produces “frictional losses” which make the feeder expensive. The put option is held in any case not with profit intention, but only to the trade with the asset