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<blockquote data-quote="Up In Smoke" data-source="post: 5406362" data-attributes="member: 79702"><p>I would leave the short selling to the heavily funded trader.&nbsp; What I would prefer to see investors do is buy a put as protection against an economic down turn.&nbsp; Say you own Coke, and it&#039;s at $60/share and you want to protect your asset.&nbsp; Through your margin account you would bid on contracts that protect a certain dollar loss, say $57 or 5%.&nbsp; In most instances the cost per share to insure a small loss of this nature would cost a premium of less than 1%.&nbsp; Duration of the contract brings more risk and the premium will reflect that also.&nbsp; So, for the Coke example you purchased 10 November 18th put contracts (1000 shares) at a strike price of $57, it would cost you $.12/ share or a grand total of $120.00.&nbsp; If the stock price of Coke dropped to your strike price and it closed, you would profit $3000.00 less the $120.00.&nbsp; If the stock price never reaches the $57 before the expiration date you lose only the $120.00.&nbsp; Where the real money comes in is if the stock drops well below your strike price.&nbsp; In US trading your allowed to close the transaction before expiration, giving you the ability to close at any time.&nbsp; Traders can also utilize stop/loss functions to guarantee a profit.&nbsp; It&#039;s important to remember, you also own the underlying asset whose value has dropped, but you&#039;ve insured the loss and in many cases made far more on the down turn than what the underlying asset lost.&nbsp; Where things get real profitable is when you have an option in the money, you take your profits and buy new positions (calls or puts).&nbsp; This is called stringing options and now your using house money to protect your investments.&nbsp; Hope this made sense and helps.</p></blockquote><p></p>

[QUOTE="Up In Smoke, post: 5406362, member: 79702"] I would leave the short selling to the heavily funded trader. What I would prefer to see investors do is buy a put as protection against an economic down turn. Say you own Coke, and it's at $60/share and you want to protect your asset. Through your margin account you would bid on contracts that protect a certain dollar loss, say $57 or 5%. In most instances the cost per share to insure a small loss of this nature would cost a premium of less than 1%. Duration of the contract brings more risk and the premium will reflect that also. So, for the Coke example you purchased 10 November 18th put contracts (1000 shares) at a strike price of $57, it would cost you $.12/ share or a grand total of $120.00. If the stock price of Coke dropped to your strike price and it closed, you would profit $3000.00 less the $120.00. If the stock price never reaches the $57 before the expiration date you lose only the $120.00. Where the real money comes in is if the stock drops well below your strike price. In US trading your allowed to close the transaction before expiration, giving you the ability to close at any time. Traders can also utilize stop/loss functions to guarantee a profit. It's important to remember, you also own the underlying asset whose value has dropped, but you've insured the loss and in many cases made far more on the down turn than what the underlying asset lost. Where things get real profitable is when you have an option in the money, you take your profits and buy new positions (calls or puts). This is called stringing options and now your using house money to protect your investments. Hope this made sense and helps. [/QUOTE]

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