Buying put options is a great way to pocket gains when you expect a stock is going to fall.
Future of Wealth Head Trader Lance Ippolito’s Weekly Blitz Alerts strategy just capitalized on weakness in American Well Corp. (NYSE: AMWL) that helped their May 21 $12.50 puts more than double from their entry!
Puts are also an effective way to manage your risk in a position by limiting your losses from a downward move.
Of course, there’s a time and place for everything.
So it might seem like the right time to buy put options is when there’s a series of down days in the stock market like we had through the middle of this week…
But as Lance is about to explain, those are the exact conditions traders will pay top dollar for downside exposure.
Buying Put Options
Put options can help one’s portfolio when bad things are happening in the markets.
And to help you understand that, think about the situation like an insurance policy for when things turn south on Wall Street.
If the insurance salesman thinks there’s a good chance they’ll have to pay out, they’re going to hike your premium.
Because demand for their service is about to skyrocket.
He’s discussed in the past how traders can participate in both upward and downward trends with the use of option spreads when implied volatility (IV) is high. (Pro tip: Check out Lance explaining implied volatility here.)
For example, you could use a bear call spread instead of buying put options when IV is up. To set up this strategy, a trader first sells a call option. Then they buy a second call option with the same expiration date, but a higher strike price.
And the strike price of the call sold is lower than the call bought. That way, the premium from the sold call is always greater than the cost paid in the second leg.
These kinds of options strategies offer excellent limited risk-reward scenarios. And that can help keep trading accounts moving in the right direction… even when the markets aren’t.
Check out Lance’s short video below and let’s talk about different ways traders can improve their success by buying put options.
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P.S. It’s finally happening…
Wall Street legend Chuck Hughes is revealing the never-before-seen blueprint to all of his trading success.
He’s even going over how he plans to quintuple his account over the next three months!
But the best part is Chuck wants to help other traders experience what could be the most lucrative summer of their lives…