How to invest in Argentine actions “with insurance” to not suffer the falls

Despite the upward trend of recent years, Argentine shares remain very volatile financial assets. Therefore, they can fall strongly into short periods of time. In particular, it usually happens in electoral times such as the one currently lived.

Therefore, it is worth knowing How to invest in local companiesbut “With insurance” for take away from possible losses.

How to buy Argentine shares “with insurance” through Put options

In the Argentine capital market, as in those of the rest of the world, financial options are negotiated, contracts that allow to agree on a purchase or sale of a certain asset at a certain price on an established date.

There are two types of options:

• Purchase options (call): They provide the buyer for the right (but not the obligation) to buy an asset on certain dates and certain prices, in exchange for paying a premium. In this case, the seller of the option is obliged to sell the underlying asset.
• Sales options (put): It gives the buyer the right (but not the obligation) to sell an asset on certain dates and certain prices, in exchange for the premium. In this case, the seller of the option is obliged to buy the underlying asset.

In the case of the PUT options, they act as “insurance”, since one can be guaranteed to detach from an asset at a higher price than could be achieved in case of a collapse.

“If we have shares of Grupo Financiero Galicia (Ggal) that quote $ 6,080, we can seek to cover an eventual price drop by buying a put (for example, the GFGV5924AG) paying a $ 180 premium,” story Germán Marínspecialist in financial options.

“In this way, we will have the right to sell our shares at $ 5,942. We ensure a sale price, which what it does is plain and plain put a stop to the losses, in this case 5.5% (it is the result of selling the shares a $ 156 below our purchase price added to the cost of the put, of $ 180),” he added.

In the event that prices continue to upload and the sales option is not executed, only the premium is lost. Operation is like that of car insurance: The cost of the policy is paid to protect from an accident.

What are the market waiting?

The interesting thing about the option market is that it allows us to interpret what investors are seeing. And in a year of elections, this data is fundamental.

However, for the moment, the prices of these derivatives are not providing much information due to the size of the operations and the remoteness of the electoral event.

“If we take into account the behavior of the Merval in dollars in the current year, it has falls for 25%, which is deepened if we take the peak of January 9 where the decline increases to 33% until the closing of July 14, 1,604 points. While it is true that we find ourselves 10% above the minimum of the year headed on April 8, we are far from the maximum we knew to see”began to explain Gustavo Gardeydirector of Bull Road Investments.

“Today, economic agents are paying much more calls locally, thinking of a Upside potential, rather than looking for coverage. You have implicit volatility of 47% against an average historical volatility of 36% in the last month. Convexity too, that is, the Calls at the Money are with an implicit volatility of 8% more than the Puts at The Money. Potential rebounds ”, The specialist added.