Tag: put options

What are put options?

Put options grant the holder or buyer of the put stock options the right to sell the underlying security at the strike price until the expiry date. In turn, the seller or writer of the put has the obligation to buy or take delivery of the underlying security until expiration.

Suppose you hold a high-quality stock in your portfolio that you believe will rise in price over the long term. But you’re concerned about a possible downturn in the market in the short term. You can buy a put option for the stock. This will give you the right to sell your stock at a set price (the strike price) within a certain time frame (before the expiry date).

If the stock price stays above the strike price, you would let the option expire unexercised—you only lose the cost of the put. But if the market declined drastically, you could exercise your option and sell your shares to the writer of the put at the strike price. You could then, if you wanted to, buy the shares back again at the lower market price.

Note, though, that buying put options for insurance is like betting against yourself. You’re better off just selling the stock if you think it’s going to drop in price. Furthermore, you may be right about a market decline, but you have to hope it happens before your put expires. If the decline takes a while to occur, you could continue to buy puts for a considerable period of time. That would eat steadily into your eventual profits.

At TSI Network, we recommend using our three-part Successful Investor philosophy:

  1. Invest mainly in well-established companies;
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
  3. Downplay or avoid stocks in the broker/media limelight.

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Pass on this ETF

April 7, 2022||ETFs

BMO U.S. PUT WRITE ETF $14.36 (Toronto symbol ZPW) sells put options on a range of U.S. large-cap stocks to generate income for the ETF. These options give the put buyers the right to sell specific stocks to the ETF at a pre-determined price. Buyers profit when… Read More

We see only one of these new ETFs as a buy

August 13, 2020||ETFs

This month we look at two new ETFs launched by U.S. providers. The first promises to provide some protection when markets decline, and the second invests in companies that will benefit from the work-from-home trend.
NATIONWIDE RISK-MANAGED INCOME EQUITY ETF $27.45 (New York symbol NUSI) seeks to provide regular… Read More

Pass on this ETF

February 7, 2019||ETFs

BMO US PUT WRITE ETF $16.99 (Toronto symbol ZPW) sells put options on a range of U.S. large-cap stocks to generate income for the ETF. These options give the put buyers the right to sell specific stocks to the ETF at a pre-determined price. Buyers profit when a stock’s… Read More

Neither of these ETFs holds special appeal

August 16, 2018||ETFs

Here we take a closer look at two relatively new North American ETFs. This month’s selections include a quantitative, low-volatility Canadian equity ETF and a global pet-products ETF.
FRANKLIN LIBERTY RISK MANAGED CANADIAN EQUITY ETF $21.04 (Toronto symbol FLRM; Market cap: $12.7 million) aims to invest in Canadian equities… Read More

The facts about … Stock options

April 19, 2018||Spinoffs

Many aggressive investors find the lure of stock options hard to resist. However, despite that appeal, the vast majority of investors lose money with options.
Call options give the holder, or buyer, the right to purchase the underlying security at a specified “strike” price up until… Read More