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Chapter 7. Option Strategies in Down Markets

Chapter 7. Option Strategies in Down Markets

Some options moves qualify as conservative strategies—as long as the purpose is to manage the portfolio rather than to simply speculate. You can use long puts or calls to manage price change, and short puts—with their limited risk—present great opportunities as long as they are used solely when you would be happy to acquire more shares of the underlying stock. This chapter provides a conservative context to these ideas, explains how to evaluate your stock positions when prices have fallen, and examines options strategies to reduce market risk.

The chronic problem every investor faces is the inevitability of cycles. The stock market experiences these cycles in a variety of ways. The severity and duration of a cycle determines the success of your program, if only because timing is so crucial. Even though you invest with the long term in mind, you prefer to adhere to the advice to buy low and sell high—instead of the other way around. Chapter 6, “Alternatives to Stock Purchase,” showed how to devise a rescue strategy when stocks move in an unexpected direction as part of a contingent-purchase plan. In this chapter, we offer a variety of additional option strategies worth considering.


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