Strategies
 

For those investors holding a portfolio of mixed stocks who have unrealized profits to protect, protective index puts might be an appropriate strategy to consider. Purchasing index put options with a given strike price for downside protection can, at least in part, limit any losses on the downside.

When the decision is made to buy index puts, the investor should at first select an index that best tracks the performance of that portfolio and establish a put position with its overlying options. Then the investor considers the value of the portfolio and the current level of the index chosen to determine the number of options to buy, and a put strike price is chosen that provides the degree of downside protection wanted.

Today’s investor has a choice of shorter-term expiration months afforded by regular index option contracts, longer-term expirations available with LEAPS®, as well as multiple strike prices. So no matter an investor’s anticipated target for downside protection, there is most likely a put contract that fits this need.

 
 

Previous Page

 

 



Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options (ODD). Copies of the ODD are available from your broker, by calling 1-888-OPTIONS, or from The Options Clearing Corporation, One North Wacker Drive, Suite 500, Chicago, Illinois 60606. The information on this website is provided solely for general education and information purposes and therefore should not be considered complete, precise, or current. Many of the matters discussed are subject to detailed rules, regulations, and statutory provisions which should be referred to for additional detail and are subject to changes that may not be reflected in the website information. No statement within the website should be construed as a recommendation to buy or sell a security or to provide investment advice. The inclusion of non-CBOE advertisements on the website should not be construed as an endorsement or an indication of the value of any product, service, or website. The Terms and Conditions govern use of this website and use of this website will be deemed acceptance of those Terms and Conditions.