Meet Gene, a NASDAQ Market Maker Message Board

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Non-Tech : Meet Gene, a NASDAQ Market Maker

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To: Mark Z who wrote (531)	8/13/2000 11:20:46 PM
From: KFE	Read Replies (1) of 1426

Mark, Can anyone explain what the benefit is of being able to buy a 'protective put' against shares in a retirement account? A protective put is bought to limit downside risk. Institutions buy out of the money puts(usually deep OTM) so that their maximum loss can be determined in advance and makes money management easier. It is sometimes referred to as "disaster insurance". Many times you will see a block trade of OTM puts and the message boards and option tout sheets will say that someone is betting big that the underlying is going to tank. Many times this is just an institution buying them to limit their potential loss on a stock that they are actually bullish on. No reason why you can't have the same solid strategy in a retirement account. You may ask why not just use a stop loss order to accomplish the same thing. It would not give the same protection because of possible gaps and for institutions with very large size to do stops are not as practical. If one believes their stock is going to take a hit, why not just sell the common? Absolutely, sell the common. Protective puts are bought on a stock that you are bullish on but just want to limit your losses. Regards, Ken

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