Protect Profit in an Options Call by Buying a Put

by David Jenyns on June 28, 2007

Protect Profit in an Options Call by Buying a Put
Here’s a tricky one but very useful. A man bought a 90-day Call at 50 (stock was selling at 50) for $350. In 60 days the stock rose to 70. At this price of 70 he has a 20-point profit, less the cost of his option, and he buys a 60-day Put at 70 for about $400. Let us see what happens. Say that in the 60-day life of his Put the stock declines again to 50. He has lost the profit that he had on his Call, but he has a 20-point profit on his Put, less 2 premiums totaling $750-a net gain of $1,250.

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