While the typical share investor might regard a stop loss order as the best way to protect their share portfolio against the downside, the informed investor knows the most effective way to protect their capital is by hedging, using Put Options.
That’s certainly not to say “don’t use a stop loss”, in fact when trading any market, you should always set a pre-determined price that is the maximum you’d be willing to lose in the event of the position moving against you.
Put Options however, allow you to ensure you don’t lose at all as they give you the right to sell your shares at a fixed price anytime throughout the life of the contract.
When you own shares in a blue chip performer, taking out insurance with Puts is a simple process, however if you own shares in a company who is not registered on the options market, you won’t be able to buy put options relating to your shares because they won’t exist.
These stocks are referred to as ‘non-optionable’ stocks. Now that doesn’t mean that you can’t insure non-optionable stocks at all, because there is a strategy that allows you to insure your portfolio as a whole that not too many people know about and it uses Put Options over the Index.
Download your copy of this strategy here Index options as Insurance
To your success
Lorraine James
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