I am contemplating buying a put on either the DOW or another of th big Western indices - I know a bit about options and like the limited downside risk etc. What I am not clear on is how to go about actually buying a put and what the numbers mean on - for example - cboe quotes 07 Dec 120.00 (DJW XP-E) 0.60 so that is 60 cents x something to get a put @ 12000 on the DOW expiring DEC/07. So what would the total premium be and what would I make should - lets say - the DOW be sitting at 11500 come December. I guess we are talking American style options here where I could exercise at any day up until the expiry, whereas most UK options you have to wait until expiry to exercise, potentially missing some lucrative moments?
thanks,
Matt

ig is currently quoting $51 to buy a december put @ 12000.
So you can buy 1 put option on the whole index, measured in dollars, for $51
If the DOW is 11500 on expiry, then you will get a $500 return for your $51 investment.
If the DOW is above 12000 on expiry, then you get nothing.

Of course you could sell earlier for a profit or loss depending on the sale price which is currently $43 but is quite volatile having been over $100 recently.

Hope this helps.

Bazza, I have been using IG to spreadbet for the last few months (£4000 up but should have been much more with a bit of discipline). I'm new to all this and would appreciate a second opinion to make sure I have understood options correctly. Let's say I'm very bearish and I think the DOW is going to see huge drops over the next few months (once the Fed stops cutting rates of course. Incidentally, I made most of my money on the last Fed decision so roll on Wednesday).

Assuming the DOW is trading at 13600 today, I could either:

1. Buy a March 13550 Put for £544. If the DOW hit 12000 in March, my option would be worth approximately 13550-12000 = £1550.00 for a £544 outlay. (Can I just check, what I want to do is buy a put in this scenario, right?)

OR

2. Place a spreadbet and sell the DOW for £1 per point with a stop 544 points away at 14144. If I'm not stopped out, and the DOW hits 12000 in March, I will make approximately 13600-12000 = £1600.00 for a £544 outlay.

Am I correct in thinking, the benefit with the put is that you don't get stopped out and can stay in the game? Given how the DOW can be so volatile and spike (I have taken correct positions in the past but been stopped out because of this spiking which is annoying), isn't it always better to buy options in this case?

By the way, mattyboy1973 mentions that UK options must be held to expiry - does anyone know if this is the case at IG? I will try and find out and post back but if anyone knows please chip in. I presume (I really must stop doing that) that you can sell a put to close your original bought position like with spreadbetting...

bazza - thanks for the advice - I haven't done it yet as the funds haven't come in, might have missed the best prices will take another look now.
bear monger - UK style options you can only exercise on expiry date (unlike US, or Bermudans which have a few set days) - but if you are 'above water' (or even not) you can close out your position - as in sell it on to someone else so no, you are not stuck with your option until expiry.