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 Derivative?23 Views
finance a la shmoop what is a derivative? well it's derived it's a something taken
from something else like a derivative of hot weather is thirst a derivative of [Girl takes sip of glass of water on a beach]
hunger is well you know crankiness that's diva thing you get there...
derivative of a 1/32 quarterback rating in the NFL is like serious wealth yeah
yeah discount double shmoop yeah look for it be on there with aaron
and a derivative of a stock or bond or other security is a something which
derives its value based on the performance of that underlying security
there are basically two flavors of derivative put options ie the right to [Ice cream flavors appear]
sell a security at a given price over a given time period and a call option, ie
right to buy a security at a given price over a given time period
well the price of that option is derived from the price of the security and a few
other factors like strike prices and duration and all that stuff
colonel electric the downgraded new version of General Electric is trading [Colonel Electric appears in a suit]
for 25 bucks a share a derivative of its share price is sold in the form of a
call option with a $30 strike price expiring about 90 days from now on the
third Friday of the end of that month well investors pay a price albeit
probably a small one for the right to then pay 30 bucks a share for colonel [Call option appears for colonel electric]
electric at any time in the next 90 ish days until that option expires making the bet
that the stock will go well above 30 bucks a share in that time period that
call option is thus a derivative of the colonel electric primary stock price got
it if you really want to get personal well here's the ultimate form of
derivative [Baby laying down]
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...
What is a call option? A call option is a type of contract that lets the investor buy shares of a stock at a certain price and within a window of t...