Greenspan put

A ‘put’ is a type of option contract that increases in value as the price of the underlying asset falls. Puts are often used by traders as insurance or to hedge their positions: they may go long on a stock but also take a put option on it to reduce their losses should its price fall. This effectively limits their downside.

In the 1990s, the market came to believe that the US Federal Reserve, then chaired by Alan Greenspan, was effectively providing the same sort of service for the market as a whole by guaranteeing that it would underwrite it at a certain level. Hence the phrase ‘Greenspan put’. This belief was vindicated by the Fed’s prompt action in cutting rates in tricky moments, such as in the wake of the LTCM hedge-fund crisis, and by its willingness to keep rates low throughout the 1990s.

• See Tim Bennett’s video tutorial: What are options and covered warrants?

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12