Put options can be used for many purposes, one of which is to lock in profits on a stock that has advanced rather quickly. Sometimes it is difficult to know whether to sell a stock that has had a quick run up of 20-30%. Will it continue to rise? Should I take the profits now? What if it keeps going? What if it starts to decline? How long should I watch it? Will I regret selling? Will I regret not selling? Save yourself from all this mental anguish by purchasing a put option and locking in your profits!
After a stock has had a wonderful run, it is natural to suspect that there might be a period of consolidation. You would like to lock in your profits but also allow the stock to keep following its current trend if that is what is going to happen. You can accomplish both by purchasing a put option. Simply select a put option that will guarantee that you will receive a profit. You will probably want to select a put option that expires in 2-3 months giving the stock an opportunity to consolidate and then begin its rise or to decide that it is done and decline again. To purchase such a put option will likely cost about 10% of the current stock price meaning that your 30% gain would be locked in at about 20%. A 20% gain is nothing to be ashamed of. Continue reading ‘Using Put Options to Lock in Profits’ »