The put ratio backspread is a relatively complicated option strategy that involves simultaneously buying and selling puts. The "ratio" part comes in because you buy more puts than you sell...the ratio of which determines the structure of the trade.
When you sell an options contract, you collect a premium, i.e. you get paid money in the deal. When you buy one, you have to pay out. Those details might sound a little basic, but they're crucial for explaining the way this setup works.
In setting up the put ratio backspread, you are selling puts in order to pay for other puts you want to buy. Usually, a trader will try to secure a slight gain from the initial buying and selling transactions, so that if all else fails, they will be sure of that small profit. However, trades often get set up with a mild deficit at the start, with the trader hoping to make it up by guessing correctly about the movement of the underlying asset.
Shares of Poot Limited are trading at $20. Puts with a strike price of $21 are trading at $2. Puts with a strike price of $19 are trading at $75. You sell one put with a strike price of $21, bringing yourself $2 in the transaction. Meanwhile, you buy two puts with the $19 strike price, for which you have to pay $0.75 for each. You've earned a premium of $2 from the sale, while the puts you bought cost you a total of $1.50. You're up $0.50 so far. (This is all multiplied by 100, because any option contract applies to 100 shares; your total gain on the deal so far is $50).
Now, if the stock falls below $19, the two puts you bought will pay off. If it doesn't drop, you've still got the small profit you secured from the initial transactions.
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Finance: What is the Bid-to-Cover Ratio?11 Views
Finance allah shmoop what is the bid to cover ratio
doesn't have to do with how much of the blanket
your loved one leaves you at night No that's bed
to cover ratio Totally different We're talking about a sentiment
index as it relates to us treasury bill auctions and
the overall health of the u s economy As you
hopefully remember us treasury securities air sold at a discount
to par pay no interest along the way and then
just pay full par at the end That is a
bid for a six month t bill might be a
nine hundred eighty eight dollars and twenty cents for a
piece of paper paying a thousand bucks in six months
We'll have the government come up with that nine hundred
eighty eight twenty number Was it from an act of
congress a mandate from the prez of bill no it
was set by bids from investors hoping to be ableto
buy that grand payable in six months for as cheap
a price as possible But once that bid number is
set well then the government decides it wants to sell
me x dollars worth of that particular security and the
price is set The government hopes that there are buyers
or bitters for that security paying some in two ish
percent and change an annualized returns Well if there are
tons of bidders at two percent it signals to the
government that next week well it can probably offer just
one point eight percent for that same paper all else
being equal and you know then they can raise as
much money as they want at that point Well if
there are scant few bidders well then it signals to
the g men that they might have to raise the
rent they pay on the money they're willing to borrow
here A two point once before do two point three
percent or something like that So the bid teo cover
ratio is the number of bids made divided by the
number of bids accepted or covered and it's a carefully
tracked number because it conveys a lot of market intelligence
about investor demand for us paper and you know generally
how healthy things are So to recap bid to cover
ratio bed to cover ratio on this would be a 00:02:08.09 --> [endTime] bed couch ratio
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