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Protective put buying strategy

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Definition of Protective put buying strategy

Protective Put Buying Strategy Image 1

Protective put buying strategy

A strategy that involves buying a put option on the underlying security that is
held in a portfolio. Related: Hedge option strategies



Related Terms:

Active portfolio strategy

A strategy that uses available information and forecasting techniques to seek a
better performance than a portfolio that is simply diversified broadly. Related: passive portfolio strategy


Barbell strategy

A strategy in which the maturities of the securities included in the portfolio are concentrated
at two extremes.


Bullet strategy

A strategy in which a portfolio is constructed so that the maturities of its securities are highly
concentrated at one point on the yield curve.


Buy-and-hold strategy

A passive investment strategy with no active buying and selling of stocks from the
time the portfolio is created until the end of the investment horizon.


Buying the index

Purchasing the stocks in the S&P 500 in the same proportion as the index to achieve the
same return.



Combination strategy

A strategy in which a put and with the same strike price and expiration are either both
bought or both sold. Related: Straddle


compensation strategy

a foundation for the compensation plan that addresses the role compensation should play in the organization


Protective Put Buying Strategy Image 2

computer-aided design (CAD)

a system using computer graphics for product designs


computer-aided manufacturing (CAM)

the use of computers to control production processes through numerically
controlled (NC) machines, robots, and automated assembly systems


computer integrated manufacturing (CIM)

the integration of two or more flexible manufacturing systems through the use of a host computer and an information networking system


confrontation strategy

an organizational strategy in which company management decides to confront, rather than avoid, competition; an organizational strategy in which company management still attempts to differentiate company
products through new features or to develop a price
leadership position by dropping prices, even though management
recognizes that competitors will rapidly bring out
similar products and match price changes; an organizational
strategy in which company management identifies
and exploits current opportunities for competitive advantage
in recognition of the fact that those opportunities will
soon be eliminated


cost leadership strategy

a plan to achieve the position in a
competitive environment of being the low cost producer of
a product or provider of a service; it provides one method
of avoiding competition


Covered call writing strategy

A strategy that involves writing a call option on securities that the investor
owns in his or her portfolio. See covered or hedge option strategies.


Covered Put

A put option position in which the option writer also is short the corresponding stock or has
deposited, in a cash account, cash or cash equivalents equal to the exercise of the option. This limits the
option writer's risk because money or stock is already set aside. In the event that the holder of the put option
decides to exercise the option, the writer's risk is more limited than it would be on an uncovered or naked put
option.


Dedication strategy

Refers to multi-period cash flow matching.


differentiation strategy

a technique for avoiding competition by distinguishing a product or service from that of competitors through adding sufficient value (including quality and/or features) that customers are willing to pay
a higher price than that charged by competitors


Protective Put Buying Strategy Image 3

Forward buying

The purchase of items exceeding the quantity levels indicated
by current manufacturing requirements.


Full-Employment Output

The level of output produced by the economy when operating at the natural rate of unemployment.



Immunization strategy

A bond portfolio strategy whose goal is to eliminate the portfolio's risk against a
general change in the rate of interest through the use of duration.


Import-substitution development strategy

A development strategy followed by many Latin American
countries and other LDCs that emphasized import substitution - accomplished through protectionism - as the
route to economic growth.


Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.


Impute

To assign a value to a good or service in place of a market value that is not available.


Imputed Rent

The value of consumption services obtained by owning one's house rather than having to pay rent.


input-output coefficient

a number (prefaced as a multiplier
to an unknown variable) that indicates the rate at which each
decision variable uses up (or depletes) the scarce resource


Input-output tables

Tables that indicate how much each industry requires of the production of each other
industry in order to produce each dollar of its own output.


Ladder strategy

A bond portfolio strategy in which the portfolio is constructed to have approximately equal
amounts invested in every maturity within a given range.


National Output

GDP.


Output Gap

The difference between full employment output and current output.



Overlay strategy

A strategy of using futures for asset allocation by pension sponsors to avoid disrupting the
activities of money managers.


Passive investment strategy

See: passive management.


Passive portfolio strategy

A strategy that involves minimal expectational input, and instead relies on
diversification to match the performance of some market index. A passive strategy assumes that the
marketplace will reflect all available information in the price paid for securities, and therefore, does not
attempt to find mispriced securities. Related: active portfolio strategy


Poison put

A covenant allowing the bondholder to demand repayment in the event of a hostile merger.


Potential Output or Potential GDP

Output produced when the economy is operating at its natural rate of unemployment.


Protective covenant

A part of the indenture or loan agreement that limits certain actions a company takes
during the term of the loan to protect the lender's interests.


protective covenant

Restriction on a firm to protect bondholders.


Put

An option granting the right to sell the underlying futures contract. Opposite of a call.


Put

An option to sell a stipulated amount of stock or securities within a
specified time and at a fixed exercise price. See Call.


Put an option

To exercise a put option.


Put bond

A bond that the holder may choose either to exchange for par value at some date or to extend for a
given number of years.


Put-call parity relationship

The relationship between the price of a put and the price of a call on the same
underlying security with the same expiration date, which prevents arbitrage opportunities. Holding the stock
and buying a put will deliver the exact payoff as buying one call and investing the present value (PV) of the
exercise price. The call value equals C=S+P-PV(k).


Put option

This security gives investors the right to sell (or put) fixed number of shares at a fixed price within
a given time frame. An investor, for example, might wish to have the right to sell shares of a stock at a certain
price by a certain time in order to protect, or hedge, an existing investment.


Put Option

A contract that gives the holder the right to sell an asset for a
specified price on or before a given expiration (maturity) date


put option

Right to sell an asset at a specified exercise price on or before the exercise date.


Put Option

Contract that grants the right to sell at a specified price at some time in the future.


Put price

The price at which the asset will be sold if a put option is exercised. Also called the strike or
exercise price of a put option.


Put provision

Gives the holder of a floating-rate bond the right to redeem his note at par on the coupon
payment date.


Put swaption

A financial tool in which the buyer has the right, or option, to enter into a swap as a floatingrate
payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.


Putaway

The process of moving received items to storage and recording the related
transaction.


Puttable bond

A bond that allows the holder to redeem the bond at a
predetermined price at specified future dates. The bond contains an embedded
put option; i.e., the holder has bought a put option. See Callable bond.


Randomized strategy

A strategy of introducing into the decision-making process a random element that is
designed to reduce the information content of the decision-maker's observed choices.


Spread strategy

A strategy that involves a position in one or more options so that the cost of buying an
option is funded entirely or in part by selling another option in the same underlying. Also called spreading.


Stock replacement strategy

A strategy for enhancing a portfolio's return, employed when the futures
contract is expensive based on its theoretical price, involving a swap between the futures, treasury bills
portfolio and a stock portfolio.


strategy

the link between an organization’s goals and objectives
and the activities actually conducted by the organization


Structured portfolio strategy

A strategy in which a portfolio is designed to achieve the performance of some
predetermined liabilities that must be paid out in the future.


throughput

the total completed and sold output of a plant during a period


Throughput agreement

An agreement to put a specified amount of product per period through a particular
facility. For example, an agreement to ship a specified amount of crude oil per period through a particular
pipeline.


Throughput contribution

Sales revenue less the cost of materials.


Transferable put right

An option issued by the firm to its shareholders to sell the firm one share of its
common stock at a fixed price (the strike price) within a stated period (the time to maturity). The put right is
"transferable" because it can be traded in the capital markets.


Uncovered put

A short put option position in which the writer does not have a corresponding short stock
position or has not deposited, in a cash account, cash or cash equivalents equal to the exercise value of the
put. Also called "naked" puts, the writer has pledged to buy the stock at a certain price if the buyer of the
options chooses to exercise it. The nature of uncovered options means the writer's risk is unlimited.



 

 

 

 

 

 

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