You may have heard traders talk about buying “put protection” while watching CNBC or hearing financial commentary. Put options are essentially bets that a stock will go down, but they can also be used by investors to hedge their portfolio against a downward move in stock price. How can put options be used as investment insurance? Salman Khan of the Khan Academy explains.
From this video, you’ll understand:
- What it means to buy “put protection”
- How the profit and loss of a put option compares to purchasing a stock