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Understanding Options 2E, 2nd Edition by Michael Sincere

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15

How to Choose the Right Put Option

If you believe that the market or your stock is going to drop in value, you have several choices. First, if you are long a stock, you can sell it to avoid future losses. Another choice is to sell stocks short. And your third choice is to buy puts. (You can also say you are long puts.)

When buying puts, you often profit when the underlying stock price goes down. For example, many years ago, housing stocks weakened after doubling or tripling in price. Instead of selling the housing stocks short, you could have bought puts on them. As the housing stocks continued to fall, your puts would have become more valuable.

Sometimes you get the feeling that put buyers get no respect. Maybe it’s because most investors ...

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