How do I purchase a Put Option?

[burglar]

I have no idea where to start.

 

[moreld]

I have no idea where to start.

What do you want to purchase a put on?

In Australia one put contract on individual stocks in for 1000 shares. They only trade on the larger issues and are illiquid.
You first need to be approved for options by your broker. I'm not sure about Australia, but in the US there are five levels of approval. As buying a put has no margin risk it is allowed under level one, the easiest level to obtain.

 

[burglar]

What do you want to purchase a put on?

In Australia one put contract on individual stocks in for 1000 shares. They only trade on the larger issues and are illiquid.
You first need to be approved for options by your broker. I'm not sure about Australia, but in the US there are five levels of approval. As buying a put has no margin risk it is allowed under level one, the easiest level to obtain.

Hi moreld,
Thank you for your response.

I am normally trading long on "penny dreadfuls".
In bull markets I do very well.
In bear markets I get savaged.
I toasted my portfolio during the GFC. So what to do next!?

I want to go SMSF but that is my serious money!
I will need to tread very carefully. Hence the use of hedging as insurance.
I think you are saying, I need to own a stock which allows Put Options
e.g. CBA
Can I have a Put Option against an index share?
As a newb to safe investment, should I buy index shares?

And I need to pass a test with the broker!

 

[pixel]

Hi moreld,
Thank you for your response.

I am normally trading long on "penny dreadfuls".
In bull markets I do very well.
In bear markets I get savaged.
I toasted my portfolio during the GFC. So what to do next!?

I want to go SMSF but that is my serious money!
I will need to tread very carefully. Hence the use of hedging as insurance.
I think you are saying, I need to own a stock which allows Put Options
e.g. CBA
Can I have a Put Option against an index share?
As a newb to safe investment, should I buy index shares?

And I need to pass a test with the broker!

Rule Number One: When in Doubt - Stay Out!

Otherwise, you will need to set yourself up with a broker to trade ETOs (=Exchange Traded Options). That will allow you to buy Puts (sell at price X on day Y) or Calls (buy at X on Y). There is an entire science written around what constitutes fair valye. If you want to become an expert, you'll need to learn all your Greek letters etc.

But if you only want to buy the odd hedge against further decline, you simply check what's on offer, decide if it's worth your money to pay x amount for the right to sell your holdings at the price y by the expiry date of said options.
Be prepared to get screwed.

Oh, and btw: If you're usually trading penny-dreadfuls, there won't be any options written over those. It's only the majors.
Check http://www.asx.com.au/asx/markets/optionPrices.do?by=underlyingCode&underlyingCode=BHP

 

[moreld]

Hi burglar
Yes index options exist. Here is the asx page on index options http://www.asx.com.au/products/index-options.htm there are links there to strategies etc.

You do not need to own a stock to buy a put on it.

In my experience the best time to buy options for hedging is when the market is trading higher and volatility is low. Volatility is one of the major inputs in option pricing and low volatility, as else being equal leads to lower prices.

Options are complex and by the sound of it, you'd be well served by doing a lot of reading first. There are bound to be treads here with book suggestions. If not there are some sounds ideas and good recommendations here http://www.fusioninvesting.com/2010/11/core-beliefs-for-successful-option-trading/

While it sounds like a good idea to hedge as an insurance policy that has a cost and over time the cost can outweigh the benefit.

 

[skyQuake]

Low's in

 

[burglar]

Rule Number One: When in Doubt - Stay Out!
... Be prepared to get screwed.

Thank you pixel,

Just to clarify, the "penny dreadfuls" is my hobby.
Been doin' that for a decade,
Knpw the risk,
Accept responsibility!

My managed funds will be transferred into the SMSF
Different ball game,
I will want it to outperform my fund manager.
I won't want to toast it?