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Strategies that limit losses if an investment falls in value.
Why It Matters
Downside protection is about sleeping at night. During the 2008 crash, the S&P 500 fell 57%. Investors with protection (puts, stop losses, hedges) limited losses to 20-30% and had capital to buy the recovery. Unprotected investors rode it all the way down and panic-sold at the bottom.
Key Points
- Put options: buy the right to sell at a guaranteed price
- Stop losses: auto-sell if price falls to a certain level
- Collar strategies: buy puts funded by selling covered calls
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Protective Puts
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Common Questions
Strategies that limit losses if an investment falls in value. Downside protection is about sleeping at night. During the 2008 crash, the S&P 500 fell 57%.
Downside protection is about sleeping at night. During the 2008 crash, the S&P 500 fell 57%. Investors with protection (puts, stop losses, hedges) limited losses to 20-30% and had capital to buy the recovery. Unprotected investors rode it all the way down and panic-sold at the bottom.
Put options: buy the right to sell at a guaranteed price
Stop losses: auto-sell if price falls to a certain level
Collar strategies: buy puts funded by selling covered calls