Option as hedging tool in a bear market
@pekss:
In times of market volatilities, options can be useful hedging tools to mitigate adverse price movements of underlying stocks in our investment portfolio. I particularly like a put option during a market downturn as it gives its holder the right but not the obligation to sell an asset at a predetermined price before its expiry. Hence, a stock investor who is concerned with downside risk for the stock in a bear market could buy a put option for the underlying stock as an insurance against the share price falling below the strike price of the option. Although there is a price to pay for buying the option, I would construe that fee as an insurance premium that one will have to pay for buying an insurance against potential liabilities. On the other hand, if we have a target price at which we w