Investing your money in the market includes risks. It is not always profits and gains. Your investment will also experience downfalls, and as a good investor, you should always be prepared for the worse. Although financial analysts are knowledgeable about the rise and fall of the market, there are things that you simply can’t predict. This is why some investors purchase insurances for their portfolios. A protective put strategy is a kind of option that you would want to consider if you want to protect your portfolio. So here are some benefits of this option for you!
What Is A Put Option?
This type of option is simply a right to sell your security on or before a particular time and date. The basics of protective puts is that is the maturity date and the strike price. The maturity date is when the options will mature. Meanwhile, the strike price is the amount of money that an option buyer can get if he or she sells the security on hand.
Another important thing to remember is that these options are supposed to be traded as contracts. Every option is equivalent to 100 shares of your underlying stocks.
Why Purchase This Option?
The main reason why you should buy put options is that they will protect your portfolio from changes that might happen in the market. The price of this option is based on the current interest rates, current price, and implied volatility.
When you have put strategies, the maximum loss that the investor can occur will be the protective put is the premium price that you will pay for the put option. However, it is a must to remember the timing when you purchase your option. And that is when the market is complacent.
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