What is put option?

The next trading term is called Put option, sometimes abbreviated as Put or Down. What is the significance of this term? what does it mean How important is it to binary options trading and ultimately how to use a put option? This article has the answer for you.

What is put option?

Put option, sometimes abbreviated as Put, refers to a form of financial contract. which is a contract between The buyer of the contract is the trader. With the contract seller is the broker. The terms in the contract are The buyer anticipates the asset price set by the seller. will have a lower value Current asset price at the time of the termination of the option contract.”

It can be explained that if the asset price is lower than the current one, the buyer will receive a return of % as agreed with the seller with the security deposit. But if the prediction is wrong The buyer must pay all the insurance money to the seller.

for example

The seller (broker) sells the GBP/JPY pair option contract, agreeing that if the buyer forecasts the price The buyer receives a profit of 90% of the security deposit.

Buyer buys a Put option contract GBPJPY at price 167.583 for a 5 minute contract with a $1000 margin.

After 5 minutes, the contract is terminated. It turns out that the price of GBPJPY is 150.00 lower than the price at the moment when the Put option contract was opened.

As a result, the buyer receives 90% of the security deposit $1000×90% = 900+1000 = $1,900.

Incidentally, the Put option has now evolved into a red button. Available in all binary options trading platforms in all brokers. Most often use the name in simple English as Down or in the Thai name is “Down”. If you see such a word, understand that it is a Put option contract.

The importance of a put option contract

Put option contracts play an important role in helping traders. Can reduce the risk of holding any asset. For example, a trader may accumulate Bitcoin at 10 BTC, buying bitcoin at a price of 1,000,000 baht per bitcoin. It appears that the asset price continues to decline.

in order not to damage the bitcoin holdings. Traders may also purchase Put option contracts to receive the % profit made while the Bitcoin price is in a downtrend.

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