Using options to prevent huge losses
Posted
Oct 02 2008, 01:35 PM
by
Kim Peterson
Rating:
The Motley Fool talks about options as a way to insure your portfolio against huge losses. Using options, an investor reserves the chance to buy or sell a stock at a set price, and within a specific time period.
A put option means you can sell a stock at a certain price before a certain date. Buying a put option for your stock is like buying insurance for it, the Fool says. You pick a price that you want to sell it at, and even if the stock falls to $0, you'd still be able to sell your shares at the price you picked.
Buying puts aren't cheap, particularly because they expire after a set time. But in this market, puts could make a big difference. The Motley Fool suggests buying them if you own large or important amounts of a certain stock, and you're worried that the stock price could go down the tubes any day now.
