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Put options are useful if you want to bet against a stock with limited risk.
by Bostonian 7y ago
Put options are useful if you want to bet against a stock with limited risk.
- TuringNYC 7y agoPut options are also useful if you are stuck with a large position you cannot unload right away, but would like to cap your downside. For example: Your tech startup was purchased by a large public company, and you end up with stock you cannot sell for, say, 3yrs. You are not an insider and now just retired and have no insider info and you dont have restrictions on puts -- In this situation, you can hedge your downside. You can also do a zero-cost collar and hedge your downside funded by giving up your upside.
- JumpCrisscross 7y agoRight. The fundamental utility of options comes as a hedging instrument.
- yoyonz 7y agoLimited risk in that for the short there is potential for an unlimited loss (-infinity), while for the put option the maximum loss is the premium (-100%). But the option strategy is much riskier as a loss of -100% is significantly more likely under the put option than the short due to implied leverage, time value decay, etc.