Search 120,491 Tips
Why Trade Options?
Hedging a position
Read this tip to make your life smarter, better, faster and wiser. LifeTips is the place to go when you need to know about Why Trade Options? and other Investing topics.
Why trade options?
Hedging a position
Options can also be used to hedge against positions already held in an equity portfolio. If you're concerned that the market may fall over the next several months, but don't want to sell the stocks in your portfolio, you can acquire "portfolio insurance" by purchasing index put options.
In the simplest terms, put options will rise in value when the underlying index falls in price. Therefore, some or all of the losses sustained due to the decline in value of the stocks in your portfolio are offset (or partially offset) by the increase in value of the purchased put option.
Not finding the advice and tips you need on this Investing Tip Site? Request a Tip Now!
| Guru Spotlight |
| Byron White |
