GO
Loading...

Use Put Options to Trade Negative Moves: Analyst

These grim markets have most investors praying for capitulation. You need a strong stomach to venture against the downward market trends, especially when everyone else is fleeing to the traditional safe havens of gold, Treasurys and of course cash.

But if you're willing to take the risk, how can an ordinary investor trade on negative moves? Use put options, Ron Ianieri, chief markets strategist at the Options University tells CNBC's Asia Squawk Box.

Put options give you the right, but not the obligation, to sell a specific security by a certain time, at a specified price.

(See Ron Ianieri's full explanation of put options on the left)

"So for instance, if I want the right to sell IBM at $90 a share, I can buy the IBM $90 strike put. Now, if IBM falls to below $90, to $70 ... $60 ... $50, I’m going to still have the right to sell it to someone at $90. When IBM is trading at $40 and I have the right to sell it at $90, that gives me a value of $50," Ianieri explains.

"And if I purchase that put, obviously for less than that, then I’ve taken advantage of a drop in IBM by owning that put and exercising my right to sell that security to someone else at $90 while trading at $40," he adds.

Charting Asia

  • Long on Stupidity, Short on Common Sense

Contact Asia News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    To learn more about how we use your information,
    please read our Privacy Policy.
    › Learn More

Asia Video

  • For many foreign firms in China, the business environment isn't what it used to be. Apart from a slowing economy, there is also a perception that international companies are being targeted by the country's regulators.

  • One of Chinese President Xi's priorities has been to rebuild public trust in the Chinese government and the Communist Party by purging them of corrupt practices. Has he succeeded?

  • In this episode of "Inside China", CNBC's Eunice Yoon takes a look at the issues that will shape China in the coming year.