5. Managing Profits and Losses

Conservative investors might be sensitive to profit taking, perhaps even more than others. Options can protect profits and even enable investors to take those profits without selling stock. On the other side of the short-term price question, options can effectively eliminate loss positions through rescue strategies.

The conservative risk profile discourages short-term decisions, and speculation is contrary to your sensible investing philosophy. Your general buy–hold–sell rule is to buy well-selected, high-quality stocks; hold them for the long term; and sell only when the fundamentals change. This smart investing approach does not preclude protecting profits when price levels become volatile. You do not want to ...

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