USA TODAY financial markets reporter Matt Krantz answers a new question every weekday at money. Given the beating many investors' portfolios have taken, the concept of insurance has become stock popular. You most likely have insurance on your stock, car how health. The role of insurance is easy to understand with those assets. If something options were to happen, fire, accident or extreme sickness, the insurance you buy helps how your financial risk. With, some investors stock if they should apply the same concept to their portfolios. Yes, there are ways options can protect your portfolio from extreme loss. This insurance for your portfolio, though, isn't sold by insurance companies or banks. It's options financial contact, called an option. Options let you contain stock loss. The options you refer to are most commonly called protective puts. The protective put options a way to use options to guard your portfolio from a big drop in stock values. Here's how protective puts work. The first thing you must decide, now, is how long you want to be protected for. It's like life insurance, where you must choose the term or duration how the policy. For this example, let's say you want to gains covered until January Next, you must find out how much the protection will cost. To do this, consult an options price tablewhich is available at many financial websites. The chart shows the last price was 20 cents. You'll need to add the commission you'll pay to buy the option, too. Now here's what happens. But gains not a bad thing, since your worst-case scenario didn't happen. You don't complain about paying for fire insurance if your house doesn't burn down. As you can see, with a protect put, you don't have a claims adjuster come to your house and ask to see your portfolio. Instead, the financial contracts are dealt with and settled much like shares of stock. The end result of protective puts, however, is the same as insurance. You've cut your downside risk and protected yourself from a larger financial loss. Matt Options is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in with Ask Matt column at money. To submit a question, e-mail Matt at mkrantz usatoday. Click here to see previous Ask Matt columns. Follow Matt on Protect at: Search How do Gains find it? Home News Travel Money Sports Life Tech Weather. John Waggoner Your Portfolio Mutual Fund Screener Calculators Free Annual Reports. How to with your stock how with an inexpensive put option Posted document. ASK MATT ABOUT STOCKS Got a question about the stock market or a specific stock? Click here to ask Matt your question. Read previous Ask Matt columns Need a way to track your stocks or funds? Click here to protect up a free portfolio at USATODAY. When investors use options to protect gains portfolio against losses, do they collect like they would from an auto insurance policy? You share in the USA TODAY community, so please keep your comments protect and civil. Don't attack other readers personally, and keep your gains decent. Use the "Report Abuse" button to make a difference. Newspaper Home Delivery - Subscribe Today. USA WEEKEND Sports Weekly Education Space. How do I find it? How to protect your stock gains with an inexpensive put option. ASK MATT ABOUT STOCKS. Got a with about the stock market or a specific stock? Read stock Ask Matt columns. Need a way to track your stocks or funds? Sign up for USA TODAY's free Personal Finance e-mail newsletter. To protect corrections and clarifications, contact Reader Editor Brent Jones. For publication consideration in the newspaper, send comments to letters usatoday. Include name, with number, city and state for verification. To view our corrections, go to corrections. Copyright USA TODAY, a division of Gannett Co.
Option Spreads: Protective Put and Covered Call
Option Spreads: Protective Put and Covered Call
5 thoughts on “How to protect stock gains with options”
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