If you’ve been following the financial media, you may have heard @mcuban and @elerianm on @SquawkCNBC referring to the “Fed put” in the markets and its impact on asset prices.
But what is the “Fed put” and how does it work?
Here’s “Fed Put” 101!
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As we covered in Options 101 (refresher below), a put option gives the buyer the right, but not the obligation, to sell an asset at a set price by a specific date.
The Fed has been clear it will support markets, so the notion isn’t without merit!
It was originally called the “Greenspan put” - a reference to former Fed chairman Alan Greenspan, who first engaged in expansive asset purchases during the 1987 market crash.
I would argue it dates back further, to the “FEDerico put” of 1500s Italy!
With apologies to my Austrian economists, that was “Fed Put” 101!
Please share and send any suggestions for future topics!