Article Side

Online Article Directory!

Hello Guest! Login or Register to submit articles!

Keep Your Profits Without Missing the Next Rally

By Prince Damin Subscribe to RSS | November 28th 2011 | Views:
loading
 
  



After the market meltdown in 2008 and early 2009, the big bounce that investors have seen in stocks has given beaten-down investors some relief after seeing their portfolios suffer big losses. But after a year during which stocks have moved up and down sharply without making much overall progress, many are concerned that the next big move for the market may be down, and they don't want to lose all the money they've earned back. To preserve your wealth against falling stock prices, consider buying put options. By owning puts, you can ensure that even if your shares drop in value, you can sell them at the price you pick within a certain period of time.

Time to take profits? One concern about put options is that they can get pricey for volatile stocks. When demand for protection increases, especially during shaky times for the stock market like we saw earlier this year and during the market meltdown, you'll pay more for puts. To measure how much options cost, options experts look to the S&P 500 volatility index, or VIX. While the VIX went to unprecedented high levels during the financial crisis and was relatively high as recently as May, it's now much lower, near a 52-week low. Thus, if you want to protect your stocks and lock in the gains in your portfolio, then you can do so now without spending as much as you would have to buy puts earlier in the year.

Which option you pick depends on how long you want protection and how willing you are to give up some of your profits. You'll pay more to buy puts with more time until expiration, puts on volatile stocks, and puts with higher strike prices. Take care of how much you spend on puts because you may end up not needing that protection at all.

Buying peace of mind:- Conceptually, put options are a lot like an insurance policy. If your stocks fall, paying a relatively small amount to limit your losses may well be worth it. If, however, shares rise or even stay flat, you would lose the entire premium you paid on most of the options listed above. In fact, if your option's strike price is below the stock's current value, you could actually see your shares drop and still suffer a complete loss on your put option.

Even though they're cheaper than they were during the financial crisis, puts are expensive enough that you don't want to count on them as a permanent fixture in your portfolio. As you can see from the examples above, you can easily pay between 3% and 8% of the stock price for protection from a drop of more than 10% and even those options last for only a few months. Still, if owning a put makes you feel more comfortable staying invested in the market, then your future gains could well make what you spend on puts look like chump change.

Protecting profits is just one way that our Motley Fool Pro service has used to deliver strong returns since its launch. It's been closed to new subscribers for 18 months, but in January, the service will briefly reopen its doors. As a limited-time offer, though, you'll need to act fast. To learn more about Motley Fool Pro and how options and other investing strategies can help you make money, just enter your email address in the box below to get the latest information.

Prince Damin - About Author:
Get recent talks and informations about Finance and investment news. Visit www.themoneytimes.com for more information and latest updates about personal finance news .

Share on Facebook Tweet It Stumbleupon this post This post is delicious !

Article Source:
http://www.articleside.com/investing-articles/keep-your-profits-without-missing-the-next-rally.htm

Related Investing Articles Subscribe to RSS

Gaining returns from the market and India news
Published by Reutersindia on January 6th 2012 | Investing
Fortune does not favor the brave only; it also favors the cautious, the wise, and the confident. Thi...
 
How to make recommendations in stock market
Published by Market Review on March 29th 2012 | Investing
The stock market is perhaps one of the few techniques on the world where investors can make money in...
 
Best Execution in our Home market
Published by John Pattison on December 29th 2011 | Investing
Best execution is definitely a teaching or provide by- agencies some thing to their benefit together...
 
Guidelines regarding share market
Published by Isol on August 13th 2012 | Finance
Expenditure can be a thought of rebuilding the bucks by using acquiring associated with resources, l...
 
 
Types of mutual funds available in Indian investment market
Published by Chris Luke on May 18th 2012 | Investing
Mutual funds in India are a fast expanding sector offering a wide variety of investment options to s...
 
Preferred stock- a glance
Published by Isol on August 13th 2012 | Finance
Preferred stock typically is issued for innovative investors or other institutional investors. Its n...
 
Which Sensation Should Dodd-Frank Derivatives regulation have on the current market?
Published by Aldred Bailey on June 29th 2012 | Finance
Some derivates information mill this of the unfamiliar highlight. People around the world of the Dis...
 
What are the benefits of listing company in the stock exchange?
Published by Gxgexchange on June 22nd 2012 | Investing
With this article we let you know why it is so important and what are the requirements for any compa...
 
Preferred stock- a glance
Published by Isol on August 13th 2012 | Finance
Preferred stock typically is issued for innovative investors or other institutional investors. Its n...
 
Why companies with actual wealth got success with GXG market listings and exalted evaluation of financing and going common.
Published by Gxgexchange on June 21st 2012 | Investing
By the mean of this article we are going to put some light on trading scenarios. Like there are many...
 
Reliable tips for traders to make riches in the stock market
Published by Cody on June 7th 2012 | Finance
This is one of the most important things that you need to keep in mind before you start trading on s...
 
Hidden opportunities in preferred stock
Published by Isol on August 13th 2012 | Finance

Preferred stock typically is issued for innovative investors or other institutional investors. I...
 
The longevity of surging stock prices
Published by Reyan Hunt on August 13th 2012 | Investing
In a market which has not heard good news for some time now, suddenly there is an upward movement in...
 
MiFiD's Have an effect on Usa Foreign exchange market
Published by Shaun Lehman on January 27th 2012 | Finance
When said old, the specific Directive necessitates Customer Shows to get ready ones insurances gover...
 
BROKERAGE CASA DE BOLSA identifies the business of a stock broker.
Published by Saundra Macdonald on June 8th 2012 | Investing
He or she acts as an intermediary between a purchaser as well as vendor of financial loans. For this...
 
Options trading software: evaluate market positions every minute
Published by Alvin Cook on February 22nd 2012 | Investing
To manage risk factors precisely we need a properly developed program that can assist in evaluation...
 
Finding Big Profits with live stock market
Published by Jemes Smith on June 12th 2012 | Investing
There are many online trading websites on the internet and alternative the online trading service th...
 
Finest Opportunity to Niche market Net Banking when 2012
Published by Leonardo Murdock on February 21st 2012 | Finance
The right the possibility to area of interest net banking being recognized one of the population tha...
 
Student loans in default, a rising concern for the financial market
Published by Michelsmith on January 2nd 2012 | Finance
Student loans in default state is growing day by day. The governments are really looking into these ...