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Strategy View
Investor holds stock and is worried about a market fall. Put options can
be bought to protect the value of the stock position, while not preventing
the position to benefit in the event of a market rise.
Strategy Implementation
Put options are bought with a strike price of a.
The number of put options bought will depend on the bearishness of the
investor and the size of the stock holding.
Upside Potential
Profit potential is unlimited, being the ordinary return on the stock minus
the fixed premium paid for the put option.
Downside Risk
Potentially limited, (depending on the hedge ratio initially applied).
The gains on the put options - as the market falls - will off-set the
stock losses.
Margin
Not required.
Comment
Strategy characteristics are similar to buying a call. |
