The Advisor?s Option Episode Two: Playing Defense with Protective Puts


Options 101: Continuing Education:

  • Graduating from the long call to the protective put
  • The many uses of protective puts
    • Speculative – using leverage to place a bearish bet
    • Defensive – a ?married put? can limit risk against the downside while maintaining the benefits of a long stock position
  • The benefits of protective puts – maintain voting rights, collect dividends, maintain upside potential, limit tax liability
  • No free lunch – puts can be expensive
  • Finding the sweet spot between buying too much insurance and paying too much time decay
  • Put options vs. stop-loss order – which is preferable?

Tricks of the Trade:

  • How to introduce the idea of portfolio protection to your clients
  • Options are appropriate for every level of risk tolerance
  • How to take the emotion out of the advisor/client relationship using options
  • Practical tips for implementing puts into your practice