Why Buy Put options

Finance Articles | March 4, 2009

Put options are a great way to make money from stocks that are trending down. Here are 4 reasons why.

Put options are a great way to make money as the stock market goes down. There are a number of benefits to trading them, and when the markets are falling there is no faster way to profit.

Here are some reasons that Put options can be fun to trade as stocks fall.

1. It allows you to have some sort of money making system in place as stocks keep falling.

Nearly everyone invested in the market loses money when stocks fall. A few of us who actually trade towards the downside not only protect our accounts, but profit from the fall. With options like these around there is no reasons you would be losing money when the market crashes.

2. It is much more profitable then shorting stocks.

There are two reasons why buying puts can be more profitable then shorting stocks. The first is obvious, puts go up fast. A 10% drop in a stock could mean a 300% increase in the put. The second reason is that when you buy a put you do not have to pay the dividends like you would if you where shorting.

3. As Stocks Fall So does Panic.

Everyone panics when stocks are falling. As a result the price of options increases. So as stocks fall you profit from both the stock falling and from the panic going up. This is much different then calls that profit from stocks rising but lose money as panic goes down.

4. “Stocks climb up stares and fall out windows”

When stocks go up they are pretty slow, but when they fall, they fall. A 1 or two day move may be all you need to catch to make a great return. You don’t have to wait 6 or 7 months to get a huge percentage increase.

Of course puts do carry higher risk, but if you use them right and manage your risk they can be very profitable.

For more on put options visit http://www.stocks-simplified.com/put_option.html

For more on the stock market visit http://www.stocks-simplified.com

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ABOUT THE AUTHOR

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.