You Insure Your Car, How About Your Stocks?
Put options allow you to add protection to your equity holdings in the event of a loss.
After the huge downs and ups in the markets during the past few weeks, I have a feeling that "protection" is a topic very much on people's minds. But there are several ways to protect stock positions using options. One of them is through protective puts.
The Mechanics of a Protective Put
You likely have a great deal of experience in buying protective put options, even if you do not realize you've done so. The puts that we are familiar with buying are those that you buy from companies like
Allstate (ALL) and
Travelers (TRV)--insurance on real assets.
Erik Kobayashi-Solomon does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.