Tips to Protect Yourself from Loss in the Wall Street Market

Do you want to shield yourself from the volatility of Wall Street share market? If yes, you have come to the right place, as I will let you know several tips that will help you avoid the unpredictability of the market, making you best stock investments.

The ideas are as follows.

Puts-

Puts allow you to sell your shares at any point in time over a period of days, weeks, or months at a given price. Suppose you buy put options of a company at $10, you can sell those shares at $10 anytime until the option expires. By buying a put, you are effectively buying insurance on your stock falling below a given price.

Covered Calls-

A call option is an option to buy a stock or other investment at a specified price. Someone who sells a call option on an investment can collect the premium (or the price) for the option, but he/she runs the risk of that investment going up in price. If that should that happen, they will very likely have to obtain an investment that is rising in price.

The seller of the call can protect himself (to some degree) by writing a covered call. A covered call is selling a call option but only on an investment that is already owned. If the investment should go up in price, the seller of the call will not have to scramble to buy an investment that is rising in price.

However, the seller of the covered call will still likely lose money if that investment should go down in price. Therefore, a covered call strategy is best to use on a stock that is a very good investment and not likely to go down in price; but also a stock whose upside is limited.

If the covered call strategy works as it should, the investor employing it will not lose money on the underlying stock (because the stock does not go down in price), and will not have to supply the underlying stock to the buyer of the call (because the stock does not go up in price sufficiently enough to make exercising the option worthwhile); and the covered-call writer can keep the premium paid by the buyer of the call.

Dollar-cost Averaging

Buying good stocks to invest in when their prices are down reduces your average cost per share and it allows making good profit when the prices of the shares go up.

A Stop-Loss Order

A stop-loss order is an order to buy or sell a stock when it reaches a certain price. If you place a stop-loss order to sell a stock at a price of $ 20 (for instance), then when that stock falls to $20, your stock will be sold at the market price. The stop-loss order, in this case, limits your downside loss.

These tips can be of great use to you in avoiding losses, so you should seriously think about them.

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Tips to Protect Yourself from Loss in the Wall Street Market

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