Covered in The Option Advantage · Module 3 · The five advantages
1
Position sizing first
Decide the most you are willing to lose on a trade before you enter, then size so that loss is small relative to your account.
2
Protective puts
Buying a put on a stock you own transfers downside risk to the put seller for a premium — like insurance. It always has a cost.
3
Collars and spreads
A collar pairs a protective put with a covered call so the premium you collect helps pay for the protection, at the cost of capped upside.
Common mistakes
- Hedging after the drop has already happened.
- Believing any protection is free.
- Concentrating too much in one stock.