Protective Puts
Trading protective puts is a bullish strategy that is considered to have low risk and high rewards.
How it works: Because of the volatile nature of the market, some trader will incorporate puts into
their daily trading strategy. For every 100 shares of stock you purchase, buy a protective put at
one or two strike prices below the current market price.
Example: You purchase 100 shares of stock at $87, a cost of $8,700. You buy a protective put at $4,
or $400 for one contract. Your total cost is $9,100. The break-even price is $91, which is the $87
stock price added to the $4 put price. If the stock goes even higher, you will benefit from the
increased stock price, even though the put will expire worthless.
The payoff: Protective puts offer security, just in case the trade goes bad.
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