If you have ever taken a position in a stock, undoubtedly you will have heard about placing a stop on your shares to protect them from losing value. This is usually good advice, in general. But placing a stop will usually be set at the “market”. This means you will get the best price (read this as the best price for the market makers, not you!).
Especially, in a fast-moving market to the downside, it could go past your stop, and you will wind up losing much more than you would have initially intended. But there are better ways.
One way to place a stop is to buy a Put option, which will give you your price whether it falls beyond it a little or a lot! You have set your price and you won’t lose anything more. As an example, you own 100 shares of GameStop (GME).
The price or stock doesn’t matter, it will work for any underlying that has options.
If you purchased GME on the dip at about $175 from its most recent high of $223, you could protect the position by buying a put option a month or so out.
As you can see in the image, if you go down to a potential support area for GME at $166 (the red line), you…
