Buy protective put options
A put is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.
The buyer of a put option believes the underlying asset will drop below the exercise price before the expiration date. The exercise price is the price the underlying asset must reach for the put option contract to hold value. The possible payoff for a holder of a put option contract is illustrated by the following diagram:.
A call option gives the holder the right, but not the obligation, to buy a stock at a certain price in the future. When an investor buys a call, she expects the value of the underlying asset to go up. A put is the exact opposite.
When an investor purchases a put, she expects the underlying asset to decline in price. The investor then profits by selling the put option at a profit or exercising the option.
Put Options and Call Options | Wyatt Investment Research
An investor can also write a put option for another investor to buy. If an investor writes a put contract, she does not expect the buy protective put options price to drop below the exercise price.
Buying Protective Puts
Each option contract covers shares. There are other ways to work a put option as a hedge. If the investor in the previous example already owns shares of ABC company, it is referred to as a "married put" position and serves as a hedge greek elections and stock market a decline in share price.
Dictionary Term Of The Day. A measure of what it costs an investment company to operate a mutual fund.
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Protecting Profits with Put Options - Fidelity Viewpoints
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