Trading Options as Insurance

Andrew Clacy

With the market volatility we've seen over the past few years, more investors are recognizing the value of using puts as part of their everyday trading strategy. For investors who put money in the volatile Internet or biotech sectors, the rewards can be enormous. But so can the risks--if the stock price rises instead of falls, this strategy may limit the upside potential by the cost of the put. By adding put options to their overall investment strategy, investors can better position themselves for any direction the market may head.

Using protective puts is simple and can be relatively inexpensive given the insurance value.

Using protective puts is simple and can be relatively inexpensive given the insurance value. For each 100 shares of stock you buy, buy one protective put at a strike price or two below the current market price. For example, if you buy a stock at $50, you'd buy either the 47.5 put or the 45 put. That way, if the stock plummets, you'll be able to sell the stock for close to what you paid for it.

On the other hand, if the stock jumps as you hope, you'll participate fully in the upswing less the small amount you paid for the protective puts. In this way, the puts act as an insurance policy.

The Latin phrase known to most Stock Market Traders is "Carpe Diem." It means seize the day. How much longer are you going to wait around for the perfect wealth creation system?

Wealth is your destiny...so please, settle back in your favourite chair and discover exactly how to claim it.

Today is the first day of the rest of *YOUR* life!

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