Puts
Although puts can be bought or sold in a speculative manner, some investors find it beneficial at times to purchase a put to protect against a downturn in the price of a single security or the broader market. By buying a put, an investor is able to lock in an acceptable sale price for a security, even though she may not be ready or in a position to sell it. This may be especially true of investors who have a substantial capital gain in a security and need to wait up to 12 months for the capital gain to achieve long-term status.
Example Question 1
Sandy owns a portfolio of stocks. She likes the stocks she has chosen and does not want to sell them, but she is worried about a decline in the entire market. What can she do?
Answer: