The Tehran Stock Exchange is planning to offer put options for stocks of 15 large cap companies to support shareholders and reassure them that such stocks are safe.
TSE’s Capital Market Development Fund (CMDF) will be in charge of issuing the contracts, SENA, the official news outlet of Iran capital market, said.
Operating in tandem with the Capital Market Stabilization Fund, the CMDF is a mutual fund in terms of resources and is tasked with supporting the bourse and help safeguard investor interest.
A put option is a contract giving the owner the right, but not the obligation, to sell–or sell short–a specified amount of an underlying security at a pre-determined price within a specified time frame. Put options are traded on various underlying assets, including stocks, currencies, bonds, commodities and futures.
The TSE offers put option largely for blue chips due to their high market cap and impact on the TSE’s main index, TEDPIX.
Such companies are giants like the National Iranian Copper Industries Company, Mobarakeh Steel Company, Mobile Telecommunication Company of Iran, Pars Petrochemical Company, Parsian Bank, Bank Saderat Iran, Tejarat Bank, Isfahan Oil Refining Company, Tehran Oil Refining Company, Telecommunication Company of Iran, Bandar Abbas Oil Refining Company, the two main carmakers Iran Khodro (IKCO) and SAIPA, Bank Mellat and the Persian Gulf Petrochemical Industries Company.
The measure was put on CMDF’s agenda following after a meeting between the heads of several major listed holdings, Security and Exchange Organization officials and the Economy Ministry.
Issuing put options is primarily to reassure investors that their shares hold value and that they rethink before selling. The move also is in line with government efforts to lift the share market that has been of the descending order since the summer of 2020.
As per procedures, investors buy put option for stocks they own. It is like buying insurance, or hedging against a possible decline, because the put option guarantees a set sell price on that stock.
Put options increase in value if the underlying asset falls in price, volatility of the underlying asset increases and interest rates decline.
However, they lose value when the underlying asset increases in price, volatility of the underlying asset decreases, interest rates rise and expiration nears.
Market observers are of the opinion that the decline in the bourse is here to stay.
The main index of Tehran Stock Exchange, TEDPIX, shed more than 69,250 points during the month to Sept. 22 losing 4.86% to settle at 1,355,000 points.
With the recession expected to linger in the foreseeable future, TEDPIX logged a fourth monthly loss after registering a 3.22% decline the month before.
Under the bullish run, the TSE’s main index gained more than 14% in the first two months of the year starting in late March before returning to the bear market.
