Strategies

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Buying Index Puts to Hedge

 

Index XYZ is above the break-even point at expiration
 

XYZ Index at 100
Buy 200 XYZ 96 Puts at $0.75

 
If at expiration index XYZ closes at a level of 100.75, and with the portfolio value at $2,015,000, the $15,000 total cost of the puts has been covered. Above this level the investor is positioned for potential profits which are theoretically unlimited as long as index XYZ continues to increase.

 

 
 

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