A stock options portfolio offers investors a variety of ways to save and make money in any type of market. Just as you insure life’s other valuables – your health, home, and car to name a few – a portfolio of options provides a type of insurance for your investments.
Keep in mind that the only investments that are fully insured by the US government are FDIC insured deposits such as bank deposits, CDs, US treasures and various other financial instruments. The downside to 0% risk? Near 0% returns.
The only path to real wealth is through taking on risk, but that does not mean leaving yourself exposed to the whims of the market. Options provide investors with opportunities to realize gains in bear markets as well as bull markets.
Fire-Proof Your Portfolio
In the stock market, if there is one way to make money there are a million, and buying put options is the easiest way to cushion your portfolio from losses. Experts advise holding at least a few put options in your stock option portfolio to protect against sudden declines in the market.
Often throughout history, unforeseen events such as natural disasters, acts of terrorism, and bubbles bursting have had severely negative impacts on the market and the portfolio’s of individual investors. A put option portfolio is both good speculation and good insurance to offset risk.
Best Strategy To Insure Your Portfolio
Resist the urge to purchase too much insurance. It is not necessary to have total asset protection, just a safety net. By purchasing inexpensive out-of-the-money put options, you can provide that insurance for your investments.
This limits your investment in your insurance to a small percentage. Look for put options that are undervalued with a reasonable change of realizing a profit. This strategy provides an investor with the rare chance to actually realize gains even with out a sharp fall in the market.
How To Find Put Options To Buy
Your choice of put options for your stock options portfolio should be based on a number of factors. The value of the put option is an important consideration, and you are not required to purchase puts on only securities you own, allowing you to be a true bargain hunter.
In addition, you can purchase put options on the securities you own if you feel as though the security is vulnerable to decline and you don’t want to sell. Strive to purchase inexpensive out-of-the-money put options.
These options will not protect you fully from loss, but will be your tax deductible insurance policy for a relatively low cost. Options carry significant risk of loss, and therefore may not be a suitable investment for everyone. These put options will come in handy in the event of market volatility.
With put options as part of your stock options portfolio you can afford yourself a good night’s sleep, knowing that you are cushioned from catastrophy.
Always thoroughly research potential options investments, either through your online brokerage or with a professional financial adviser to asses their benefits and drawbacks for your investment objective.
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