How Puts Help High-Net-Worth Investors Protect Portfolios from Market Losses

Puts are effectively the opposite of calls. A person who buys a put is typically making a bet that a security will fall in value over time. With my strategies, puts are purchased as more of a hedge: they can protect against market declines of either stock-based securities or bond-based securities.

Some of the fixed-income instruments I use are high-yield bond funds. These tend to move about 60 to 70% of the amount of the market overall on the downside; in other words, if the market loses 50%, a high-yield bond fund might normally fall about 30 to 35% in value. While not as bad as the market, this is still a painful loss to some investors. By buying puts on high-yield funds, or high-yield investments, we can protect against such potential market losses. The most conservative of the strategies that I utilize rely on uses puts to protect against such potential declines.

As with calls, the writer of a put is making an opposite bet versus that of the buyer: the seller is expecting the underlying security to be about the same price or to rise between the time of selling the put to the expiration date of the contract.

Learn more about Structured Portfolio investing.

Investment advice offered through Aurora Private Wealth, Inc. an SEC-registered advisor.

Securities offered through APW Capital, Inc. Member FINRA/SIPC/MSRB

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