Glossary

Greenspan put

A 'put' is a type of option contract that increases in value as the price of the underlying asset falls.

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.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

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

Advertisement

Most Popular

Visit/investments/property/house-prices/600840/the-biggest-risk-facing-the-uk-housing-market-right-now
House prices

The biggest risk facing the UK housing market right now

For house prices to stagnate or even fall would be healthy for the property market, says John Stepek. But there is a distinct danger that isn't going …
17 Feb 2020
Visit/economy/600838/money-minute-monday-17-february-good-news-ahead-for-the-uk-economy
Economy

Money Minute Monday 17 February: good news ahead for the UK economy?

Today's Money Minute looks to a week in which we get the latest employment and inflation numbers, plus retail figures for January and a slew of eurozo…
17 Feb 2020
Visit/economy/uk-economy/600824/how-the-bbc-can-survive-the-end-of-the-tv-licence
UK Economy

How the BBC can survive the end of the TV licence

The TV licence that funds the BBC is looking way past its sell-by date, says Matthew Lynn. Here's how it could survive without it
16 Feb 2020
Visit/investments/commodities/600729/the-rare-earth-metal-that-wont-be-a-secret-for-long
Sponsored

The rare earth metal that won't be a secret for long

SPONSORED CONTENT – You can’t keep a good thing hidden forever; now is the time to consider Pensana Rare Earths and the rare earth metals NdPr.
31 Jan 2020