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How can you Use Put Options for Hedging?

The purchase of a put against a share position or portfolio is like taking out insurance.

The buyer of the put thus makes sure that he will be able to sell his shares in the future at a certain price.

The paid put premium = insurance fee

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Summary

Using a put, the buyer hedges a minimum value for the portfolio. The loss is limited to a certain level (depending on the selected hedge level, defined by the exercise price of the put). There is no limit to the hedger´s profits, when equity prices advance.

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