One can buy insurance or sell insurance on stocks through the Options Markets.
If you wish to purchase insurance (protective puts) here are a few to consider before purchasing.
How volatile is the stock?
Will a stop loss be sufficient protection or do I need to purchase insurance?
Am I buying insurance while it is inexpensive ($VIX is low) and selling it when it becomes expensive ($VIX is high).
How much does the premium cost?
Do I need complete stock protection down to zero. If so, then just buy puts on the stock outright.
Do you simply need partial protection? If so, then place a lower cost bear put spread against the stock position.
A new trade idea for the week is as follows:
China Mobile ADR (CHL)
Buying the Stock with Partial Insurance
Contingent upon stock breaking above 50.05/share
Buy both the stock and Bear-Put Spread
For every 100 shares of stock
Buy to open 1 of the Dec 50 strike puts
Sell to open 1 of the Dec 45 strike puts
Limit debit = 51.55
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