The two-step blend system you’re alluding to includes joining long and short put choices to make an exchanging position with a restricted gamble and restricted reward potential. This is the carefully guarded secret:
Stage 1: Purchase a long put choice - This includes buying a put choice that gives you the right, however not the commitment, to sell the hidden resource at a particular cost (strike cost) inside a particular time span (lapse date). By purchasing a long put, you are basically wagering that the cost of the hidden resource will diminish from here on out.
Stage 2: Sell a short put choice - This includes selling a put choice with a similar lapse date as the long put choice however with a lower strike cost. By selling a short put, you are committing yourself to purchase the fundamental resource at the strike cost in the event that the choice is practiced by the purchaser. In any case, you are likewise gathering a premium for selling the choice.
At the point when joined, the long put and short put come up with a restricted gamble methodology that can benefit from a descending move in the fundamental resource’s cost. The most extreme benefit is restricted to the distinction between the strike costs of the two choices, less the premium got for selling the short put. The greatest misfortune is restricted to the premium paid for the long put less the premium got for selling the short put.
This methodology is frequently utilized by dealers who are negative on a specific resource yet at the same time need to restrict their likely misfortunes. By consolidating a long put with a short put, they can benefit in the event that the resource’s cost drops while as yet covering their likely misfortunes.