Protective Put Strategy in Binary Options Trading

Protective Put Strategy in Binary Options Trading

Protective Put Strategy Definition

Protective put strategy includes purchasing a protective put for the shares that are currently being owned by a trader. A put provides a trader the option of selling the stocks at a fixed value even if the stocks fall drastically till the expiration period of the put.

The Need of protective put strategy

Traders now-a-days are worried due to various uncertain situations of the marketplace. During green trade, traders are concerned about the stock corrections and during red trade, they are concerned for their shares falling further. The uncertainty may result in a hesitation to invest, and chances of making profits can be missed. Adopting protective put strategy is ideal in such cases as it provides insurance. Opting to buy puts against an existing stock position may give the required insurance to deal with the ups and downs of the stock market. It is very common to insure our assets with values but it is also important to understand that many of our stocks may be insured in the same way. This is where a protective put comes in handy. Generally, after paying a premium which is small as compared to the current value of your stock, a trader can get the assurance that the stocks could be sold at the strike price of the put at any time as per the trader’s wish until the put gets expired, regardless of how far the stock values drop.

Buying a put against stock is like purchasing insurance. The investor has to pay a premium amount which is the price of the put to get insurance in case of loss in the stock market. No matter what loss the stock suffers, the put buyer is able to sell it at the strike value at any desired time prior to the expiry.

Bottom Line

Protective put strategy is ideal for traders who want to limit the risk factor. By paying a small amount you can ensure that you won’t have to worry in case of bull hours. The scope of profit is not capped by this strategy and you can make unlimited profit.

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