Put Your Money Where Your Mouth Is
A put is a stock option that gives you the right to sell shares of a stock to another for a fixed price for a certain period of time. When you buy a put you are hoping the stock price will fall faster then expected. The bad part of a put option is that you have to get your market timing correct, however your limit to risk is only 100% while shorting a stock technically has unlimited risk.
Puts are often used as an insurance policy against a stock market or industry crash. They won’t help against minor corrections, but for giving up a few percentage points of annual returns you’ll save your portfolios from a meltdown in a financial crisis.
Since options involve more risk, approval from your broker is required before you can trade stock options. They just want to ensure you learn about stocks and options and their inherent risk before you put your money one the line.
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