The buyer of a put option believes the underlying asset will drop below the exercise price before the expiration date. The exercise price is the price the underlying asset must reach for the put option contract to hold value. If the stock stays strong, the investor still gets the benefit of upside gains. (In fact, if the short-term forecast brightens before the put expires, it could be sold back to recoup some of its cost.) However, if the stock falls below the strike, as originally feared, the investor has the benefit of several chThe protective put, purchase protective put options 2 wealth put hedge, is a hedging strategy where the holder of a security buys a put to guard against a drop in the stock price of that security.
Protective Put ConstructionLong 100 SharesBuy 1 ATM PutA protective put strategy is usually employed when the options trader is still bullish on a stock he already owns but wary of uncertainties in the near term. It is used as a means to protect unrealized gains on shares from a previous purchase. Unlimited Profit PotentialThere is no limit to the maximum profit attainable using this strategy.
There are several types of options strategies, each with unique risks. Considerations for options trading. How to get started at Vanguard Brokerage. For the best experience, please update your browser with the latest version. Thank you for visiting Scottrade.com. We have implemented a Skip to Main Content link and improved the heading structure of our site to aid in navigation with a screen reader.
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