Dealmaker & Equity Investor
What is a PUT Option? A PUT option is a financial contract between a buyer and a seller, which gives the buyer the right but not the obligation to sell a specific asset at a pre-determined price within a specific time frame. This means that the buyer of a PUT option can sell the underlying asset at a predetermined price, regardless of the current market price of the asset.
How to hedge your positions using PUT options? Hedging is a risk management strategy that involves taking an offsetting position in an asset to reduce the risk of loss. In the case of stock market investments, PUT options can be used as an effective hedging tool to reduce the risk of loss from a decline in stock prices. Here are the steps to use PUT options for hedging your positions:
Benefits of Using PUT Options for Hedging:
Conclusion: Using PUT options as a hedging strategy can be an effective way to protect your portfolio from the downside risk. By identifying the assets to be hedged, determining the optimal strike price, buying the PUT options, and monitoring and adjusting your positions, you can effectively reduce the risk of loss from a decline in the market price of the underlying asset. However, it is important to keep in mind that options trading involves risks and should only be done after careful consideration and consultation with a financial advisor.