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ASX and ASIC extension to the current short selling ban.
A lot of threads have recently talked about traders/investors frustration with the ban on short selling. Yesterday’s continuation of short selling by Australian regulators does not mean you can’t continue to profit from falling stock prices. During the initial ban the ASX has had three of the heaviest weeks of selling. You could have still profited from this fall using PUT options
Buying a put option is one of the lowest-cost methods of profiting from a falling share price. The strategy is considered low risk as the risk is limited to the amount paid; therefore, your risk can be controlled by choosing how much you spend. Buying a Put option gives an investor the right to sell a share at a predetermined price sometime in the future.
What is a PUT option?
Buying a put option is one of the lowest-cost methods of profiting from a falling share price. The strategy is considered low risk as the risk is limited to the amount paid; therefore, your risk can be controlled by choosing how much you spend. Buying a Put option gives an investor the right to sell a share at a predetermined price sometime in the future.
How does it work?
If an investor believes a particular share is going to fall in value they can purchase a put option which will give them the right to sell that share in the future. However, the investor need not hold the physical shares in order to profit from put options. As a Put option is a right to sell shares it increases in value as the underlying share price decreases. Although Put options have expiration dates an investor can sell the put option before expiration to profit from the fall in share prices which would increase the Put price.
Risks:
- Share price remains stagnant or falls slightly: Put options have an expiration time; therefore, there is the risk that the share price will not fall to the desired level within the chosen time frame.
- Share price rises: Should the share price rise in value the outcome at expiry of the option will be the same as if the share price remained static as the most an investor can lose when buying a put option is the cost of the put option. The Put option will loose value as the stock price rises.
Costs:
- Brokerage charges
- Time: As the option approaches expiration it will loose value as it’s time value decreases.
Short-Selling Ban on Financial Stocks to Stay Until Jan 27
Expects To Remove Ban on Non-Financial Stocks Nov 18
Expects To Remove Ban on Non-Financial Stocks Nov 18
A lot of threads have recently talked about traders/investors frustration with the ban on short selling. Yesterday’s continuation of short selling by Australian regulators does not mean you can’t continue to profit from falling stock prices. During the initial ban the ASX has had three of the heaviest weeks of selling. You could have still profited from this fall using PUT options
Buying a put option is one of the lowest-cost methods of profiting from a falling share price. The strategy is considered low risk as the risk is limited to the amount paid; therefore, your risk can be controlled by choosing how much you spend. Buying a Put option gives an investor the right to sell a share at a predetermined price sometime in the future.
What is a PUT option?
Buying a put option is one of the lowest-cost methods of profiting from a falling share price. The strategy is considered low risk as the risk is limited to the amount paid; therefore, your risk can be controlled by choosing how much you spend. Buying a Put option gives an investor the right to sell a share at a predetermined price sometime in the future.
How does it work?
If an investor believes a particular share is going to fall in value they can purchase a put option which will give them the right to sell that share in the future. However, the investor need not hold the physical shares in order to profit from put options. As a Put option is a right to sell shares it increases in value as the underlying share price decreases. Although Put options have expiration dates an investor can sell the put option before expiration to profit from the fall in share prices which would increase the Put price.
Risks:
- Share price remains stagnant or falls slightly: Put options have an expiration time; therefore, there is the risk that the share price will not fall to the desired level within the chosen time frame.
- Share price rises: Should the share price rise in value the outcome at expiry of the option will be the same as if the share price remained static as the most an investor can lose when buying a put option is the cost of the put option. The Put option will loose value as the stock price rises.
Costs:
- Brokerage charges
- Time: As the option approaches expiration it will loose value as it’s time value decreases.
