Buying Puts Can Be a Good Thing

People associate buying puts with being risky and speculative, and they are. But that does not mean that you cannot make money by trading them. In fact there are many reasons why it works to your advantage to buy puts every now and then.nn1. Stocks Can Go DownnnStocks do not only go up, they can go down as well. To truly take advantage of all moves you need to be able to make money when stocks go down. Just think about the last recession we have had. If you were bullish your account probably got cut in half or worse. If you where bearish you could have made a killing.nnBeing able to make money when the markets go up and when they go down is critical to a trader, and puts allow you to do that.nn2. Stocks Can Fall FastnnStocks can fall faster then they go up. This means that buying puts is perfect here. Puts are built for short term profits and stocks fall in short 2-5 day periods. All this leads to the fact that puts can be very valuable when they are used ncorrectly. nn3. Puts Limit Your LossnnPuts help you to limit your possible loss. If you short a stock you could have a very big loss. If a stock gaps up you could potentially lose an unlimited amount of money. On the other hand when you buy a put you already know how much you could possible lose.nnIf you spend $3 on a put that is it, you can’t lose more than $3 no matter what happens. nn4. Volatility Works in Your FavornnVolatility is another factor that helps to determine what an option is priced at. When you buy a call and the stock goes up volatility normally goes down and hurts the value of the call, this means the price of the stock has to go up enough to offset volatility.nnWhen you buy a put and the stock goes down, however volatility works in your favor. This way two factors are at work making the value of your option go up.nnFor more on put options visit http://www.stocks-simplified.com/put_option.html nnFor more on stock options visit http://www.stocks-simplified.com/stock_options.html