2 Ways for Nervous Investors to Hedge With Options

A protective put is purchased on shares you already own

Managing Editor
Feb 15, 2024 at 1:53 PM
    facebook X logo linkedin

    Wall Street has seen decent gains so far in 2024, thanks in part to earnings, inflation data, and an overall boost in investor sentiment. However, as we know, all chips can be on the table -- and lost -- with just one steep selloff when it comes to trading options. For when things are looking a little too good to be true, or warning bells are starting to ring, below are a couple of ways nervous investors can hedge their bets with options. 

    Protective Put

    protective put is purchased on shares you already own, typically at an out-of-the-money strike. The protective put acts as "insurance" in the event of a severe pullback on the stock.

    Specifically, if the underlying equity tanks and breaches the put strike within the option's lifetime, the shareholder can sell the stock at locked-in price (the strike) for more than what he or she would receive on the market. However, this is not to suggest protective put buyers don't want to see their stock rally; the puts are bought as a source of security to limit his or her losses in the event of a worst-case scenario. 


    Another hedging technique for tepid investors is called a collar. A collar is simply a protective put partially or fully paid for by a covered call. Because of the sold call -- typically written at an out-of-the-money strike -- the collar is a riskier method of "insurance" for a stock you own.

    A collar is riskier than a lone protective put because the shares could be called away on a rally above the sold call strike. Therefore, if the stock is one the trader definitely wants to keep, he or she should consider following through with only a protective put, particularly during times when the underlying's options are attractively priced.


    Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

    This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

    On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

    Start targeting gains like the ones our subscribers have seen recently, including:

    213.3% GAIN on AutoNation calls
    100.0% GAIN on Monster Beverage calls
    100.4% GAIN on Walgreens Boots Alliance puts
    100.4% GAIN on ON Semiconductor calls
    257.7% GAIN on Dell calls

    101.0% GAIN on Apollo Global Management calls
    103.6% GAIN on JP Morgan  Chase calls
    105.3% GAIN on DraftKings calls
    101.3% GAIN on Airbnb calls
    203.0% GAIN on Shopify calls
    102.0% GAIN on Cboe Global Markets calls
    100.9% GAIN on Boeing calls
    102.1% GAIN on Microsoft puts
    102.3% GAIN on First Solar calls
    101.5% GAIN on PulteGroup calls
    101.0% GAIN on Apple calls
    209.4% GAIN on NXP Semiconductors calls
    100.8% GAIN on Uber Technologies calls
    100.4% GAIN on Academy Sports and Outdoors puts
    102.2% GAIN on Trade Desk calls
    100.8% GAIN on DoorDash calls
    100.0% GAIN on Camping World Holdings puts
    100.0% GAIN on Cboe Global Markets calls
    100.2% GAIN on C3.ai calls
    238.5% GAIN on Oracle calls



    Rainmaker Ads CGI