Use Puts to Protect Profits

Use Puts to Protect Profits

http://www.options-trading-education.com/

http://www.options-trading-education.com/21711/use-puts-to-protect-profits/

A good idea when you have a stock that has

had a good run up is to use puts to protect profits.
















When the stock market has had a good run

it is always time for the investor to look to protecting his profits.















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In fact, the old saying is that you do not have a profit unless you take a profit.
















There are two ways to do this. You can sell stock or you can use puts to protect profits.
















When the investor thinks that a stock still

has a fair amount of upside potential but is

also due for a temporary correction he can use puts to protect profits.
















Only when an investor thinks that a stock is

entirely overbought and is due for a

permanent fall in price will he sell stock and totally exit the position.
















Buying puts on a rapidly rising stock in a

volatile market has been a successful

strategy in long term investing over the years.
















This is an especially valuable strategy for

traders and investors who have gotten into

stocks very early and have seen them grow substantially.
















By buying puts in stock options trading they

retain the stock in case it goes up farther in

price but buy insurance against a possible collapse in the stock price.

















http://www.options-trading-education.com/6596/stock-option-trading/


Use Puts to Protect

Profits and Calls to

Guarantee a Piece of Profits
















It makes sense to use puts to protect profits in a volatile market.
















In this case the stock prices may go up and may go down.
















If a trader wants to trade options on such a

stock buying calls and puts on the same

stock with the same expiration date covers

both the possibility of a rise and a fall in stock price.
















The trader pays two premiums but incurs no

further risk. This strategy is called a long straddle.















http://www.options-trading-education.com/183/long-straddle/

http://www.options-trading-education.com/183/long-straddle/


When one owns the stock in question then

there is no need for calls on the stock but to use puts to protect profits still makes sense.
















Smart traders and investors can use

technical analysis tools such as Candlestick

pattern formations to accurately anticipate a market reversal.


















By astute Candlestick analysis the trader will

have his puts, and his peace of mind, in place when the market goes crazy.
















Careful Analysis

Pays Off
















When everyone seems to want to buy

stock, regardless of price, the investor who

had the foresight through fundamental

analysis of a stock as well as technical

analysis of the market to buy stock early will be looking to take his profit.
















So, why doesn’t the investor or trader just sell the stock?
















Because market sentiment is still positive

and the stock may still go up substantially in price.
















Using Candlestick chart analysis the

investor knows that the stock will go up in

price and knows that the price will correct, probably very substantially.
















Selling stock will forego profits in the last surge in the stock price.


















Waiting too long will mean incurring a loss.

Using a put on the stock guarantees that the

investor will sell the stock at the strike price,

the contract price, even after the stock has fallen in price!
















He can then just keep his profits or he can

now repurchase the stock at the now lower spot price, the new market price.
















If his Candlestick chart formations predict a

renewed rise in stock price this is what he will profitably do.















Use Puts to Protect Profits

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Transcript of Use Puts to Protect Profits