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Buying Puts on SAP


Published on - Is the current flurry of activity with traders buying puts on SAP part of the greater EU economic picture or does it just have to do with issues internal to SAP. SAP ADR shares are currently lower and have been trending downward for about two months.

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Buying Puts on SAP

  1. 1. Buying Puts on SAP By
  2. 2. Is the current flurry of activity with traders buying puts on SAP part of the greater EUeconomic picture or does it just have to do with issues internal to SAP.
  3. 3. SAP ADR shares are currently lower and have been trendingdownward for about two months.
  4. 4. The put to call ratio for January 2012 puts is three to one for theGerman software giant.
  5. 5. SAP AG is the leader worldwide indeveloping application software.
  6. 6. It sells as AmericanDepository Receipts in the USA.
  7. 7. SAP is current tradingat just over $50 a share but the three to one put to call ratio is a strong indicator that traders expect the stock price to fall.
  8. 8. Because SAP is a global company buying puts on SAP is a bit likebetting on a worldwide economic downturn.
  9. 9. Because it is a European company buying puts on SAPfalls into the category of trading options on Euro Zone stocks in general.
  10. 10. The economic picture in the EuropeanCommunity is not clear.
  11. 11. The southern tiernations have come near going into default on their sovereign debts.
  12. 12. The risk of a breakup of the EU has driven stocks and the Euro up and down for the last couple of years.
  13. 13. Now that the EUministers have agreed to closer economicintegration there may be light at the end of the tunnel.
  14. 14. However, no oneexpects quick fix and a renewed recession in Europe could lead to a global economic downturn.
  15. 15. Folks who are buying puts on SAP may be looking exclusively atEurope or at the bigger picture.
  16. 16. However, a recessionwill likely hit SAP sales and stock price.
  17. 17. The stock has traded between $50 and $68 a share in the last year and is at the bottom of that range and heading lowerif the folks buying puts on SAP are correct.
  18. 18. To a degree sometraders may be simply hedging risk with options.
  19. 19. Anyone who bought the stock nearly a decade ago bought at below $20 a share.
  20. 20. They may still expectthe stock to rise but donot want to get caught in a short term fall in stock price.
  21. 21. Although these may not be a good times for owning stocks thesemay well be good times for options trading.
  22. 22. Buying puts or calls on a stock, provides investment leveragefor the options trader.
  23. 23. It also allows the trader to hedge investment risk. The buyer of an options contract is under noobligation to buy or sell the stock in question.
  24. 24. However, if the price of the equity moves as expected the options trader can do so and profit thereby.
  25. 25. The price of an optionscontract is significantly less than that of the stock in question.
  26. 26. In chaotic times such as these traders take advantage of optionstrading in order to earn profits while limiting risk.
  27. 27. Those buying puts onSAP expect the stock price to fall and will profit if it does.
  28. 28. However, they have limited their risk in case of a rise in stockprice to the price of the options contract.
  29. 29. For more insights and useful informationregarding options and options trading, visitwww.Options-Trading-