A put is a type of derivative contract. It's an option that allows an investor to make money when the price of an underlying asset falls. (It grants the right, but not the obligation, to sell the underlying asset at a pre-set price at a pre-set time.)
A put calendar involves taking a bunch of racy pictures of various puts and assigning each one to a different month. You should see Mr. April.
Just kidding, of course. No one wants to see a put naked. (Calls are much more shapely.) Rather, a put calendar involves using multiple puts of different duration. Like...filling in your calendar with various puts for the same underlying asset. So, in April, this one expires...in June, that one expires...etc.
If all the puts have the same strike price (the pre-set price where you have the option to sell them), it's referred to as a horizontal spread. Basically, you are spreading out your bets. If the underlying asset doesn't drop into the money by April, maybe it will be there by June.
You can also set up a put calendar with different strike prices. This strategy is known as a diagonal spread. It represents a bet that an asset will continue to move lower over time. It will be down a little bit by the expiration of April's put, but down even more by the time the June expiration rolls around.
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Finance: What Is a Call Option?25 Views
finance a la shmoop. what is a call option? option? option, where are you? okay
yeah yeah. not phone options, call options. and a close but no cigar. a call option [man smokes in a tub of cash]
is the right to call or buy a security. the concept is easy the math is hard.
you think Coca Cola's poised for a breakout as they go into the new low
calorie beverage business. their stock is at 50 bucks a share and you can buy a [man stands on a stage as crowd cheers]
call option for $1. well that call option buys you the right
to then buy coke stock at 55 bucks a share anytime you want in the next
hundred and 20 days. so let's say Coke announces its new sugarless drink flavor
zero it's two weeks later and the stock skyrockets to fifty eight dollars a
share. you've already paid the dollar for the option now you have to exercise it. [man lifts weights]
so you buy the stock and you're all in now for fifty five dollars plus one or
fifty six bucks a share and your total value is now fifty eight bucks. well you
could turn around today and sell the bundle that moment, and you'll have
turned your dollar into two dollars of profit really fast. and obviously had the [equation on screen]
stock not skyrocketed so quickly well you would have lost everything. still you
lucked out and now you're sitting on some serious cash, courtesy of your call [two men in a tub of cash]
options. as for Coke flavor zero turned out to be nothing more than canned water.
Up Next
What is a put option? A put option is a type of contract that lets the investor sell shares of a stock at a certain price and within a window of ti...
A derivative of a security is a "something" which derives its value based on the performance of that security... either a put option or a call option.