Options offer a way to hedge downside risk when investors feel uncertainty and wish to protect against downside losses without liquidating their equity holdings. The put option allows an investor to sell an equity at the strike price, and can protect the investor from losses if the equity price moves below the strike price. The purchase of put options requires payment of a premium, between the bid and ask price for the particular expiration and strike price. Put protection is analogous to buying insurance against a specific loss for a designated time period in order to hedge against losses beyond a certain price point.
MarketChameleon.com offers a tool called the Put Protection Report that shows the cost of put protection for popular stocks and stocks of the investor’s choosing.
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