☝️ How Put Options Can Protect Your Stocks Versus Dips ☝️

6 min read

Dear traders,

are you curious how an options trader can use the Put Options to protect a Stock position?

Today we are going to review this wonderful tool called the put option in a step by step example. But we will also analyse the stock market and indicate what traders can expect in the upcoming days. 

SPX Steaming Towards New Highs

The SPX is making new highs now on a daily basis. The next target is aiming at 3600. Why is the market in such a bullish vibe? 

We haven’t had an August like this in the last 40 years, or in other words since 1980. Of course, one reason is the huge amount of money still aside and waiting to enter the market. Another reason is that the financial markets seem indifferent about who will be the next US president. The financial markets might see it as a win-win no matter what president is chosen, Trump or Biden. We have to wait until november and see who is gonna be the new president.

The Vix is above the key level of 25, which is a critical zone level where the market usually bounces several times in an attempt to move to a lower volatility level.

Example of Using Put Option on AAPL Stock

Despite optimism in the tech market, other sectors are still hurting considerably and this will have its impact in the next months.

Let’s say I just bought shares of Apple after the split. AAPL is around 130 which is a good price for retail investors who want to own a stake of the company.

I’m concerned about the next months and I want to be covered if the stock price is diving under 120. When trading in stocks, there are not many choices that can be done for this kind of insurance. Knowing how to use Options, however, can give you a great advantage with less risk.

In the image above, you can see the equity position on AAPL with 700 Stocks. If AAPL drops below 120 then the loss would be important. If instead I buy 7 Put Options at 120 with a January expiration, you can see that the positions won’t get hurt by a dip of the stock price below 120. This is possible because the loss of the Stock below 120 is completely mitigated by the profit from the PUT options.

In this case I have insurance against the drop of the market until January and my AAPL positions with stocks are fully protected. As you can see, Options are a very useful instrument that can be used in several ways to protect a portfolio or generate income from the market.

How to Start with Options!

Thinking about options but not sure yet? There are a couple of ways to move forward before committing to the course or educational signal service. Here is how you can stay in touch:

If you are ready to move forward, then you can choose from:

Good trading,
Marco Doni – ecs.OPTIONS expert and CNBC contributor

The articles are not intended to give any advice on how to invest money, they are just for educational purposes.

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