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A Put Option Payoff in the Future? Down is the New Up in Options Day Trading
Submitted By: SB Wise Date: January 21, 2010, 08:13:58 PM Views: 1412
Summary: Getting access to a lucrative put option payoff will be difficult for traders not fortunate enough to have a full access margin trading account. The rest of the traders in the stock market who do have the ability to act on put options may have some significant opportunities ahead given the continuing shocks to the economy. Most of the market has had a significant run up since the lows of March however clearly the results have yet to reach main street. This portends a likely shift of funds

Getting access to a lucrative put option payoff will be difficult for traders not fortunate enough to have a full access margin trading account. The rest of the traders in the stock market who do have the ability to act on put options may have some significant opportunities ahead given the continuing shocks to the economy. Most of the market has had a significant run up since the lows of March however clearly the results have yet to reach main street. This portends a likely shift of funds out of stocks once the current rally loses steam and investors seek to lock in gains before the levy breaks, sending stock prices downward.

A Put Option Payoff on Market Indices Could Be on the Horizon
The late year rally in the Dow Jones and S&P 500 have been welcome news to investors with retirement accounts and 401Ks invested in those indices. Wise investors are taking advantage of the gains and present market liquidity by re-balancing money out of those stock funds and into safe havens such as money market funds, treasuries, and high return CDs. A put option payoff on trading positions held in these indices seems likely given the economic storm still roiling at home and two wars continuing overseas.

Economic Storm Clouds Still Brewing - Reform Initiatives Stalled While Expensive Wars Continue
President Obama has been caught between a rock and a hard place in trying to make headway on domestic fronts while trying to manage two problematic war efforts. His health care initiative - designed to save money on treatments while expanding overall coverage is moving like molasses through the halls of Congress. Meanwhile 30,000 more troops are engaging in the Afghan war effort - costly in terms of both managerial and monetary resources. This leaves less money and managerial bandwidth for much needed reform efforts and stimulus spending.

Put Options Traders See Opportunity
Given the challenges facing the economy at home and abroad the market seems destined for periodic pull-backs off recent highs. Those with access to the short side of stocks (via short selling of stocks or buying puts) will have the best opportunity to take advantage of the downswings.

Those not able to access put options directly might consider using a retail binary option broker as a low cost, fast paced, high return way of participating in the stock market. This is particularly true in regard to using puts on major indices like the Dow Jones, Nasdaq, and S&P 500.

To learn more about put option trading generally, see our example where we define put option in easy to understand terms including a trade example.

Steve Wise

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