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Market Measures

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Protective Puts: Part 2

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

In a recent Market Measures segment, the Research Team explored the cost and benefits of consistently buying protective puts. The results were dismal, so this time they are taking the research a step further and exploring the same strategy with a variety of different delta puts.

Previous research has shown that consistently buying puts is an expensive strategy that does not provide adequate protection when the market turns. These results are consistent and show that the greater the delta of the put option purchased, the worse the cumulative performance.

Since timing market sell-offs is extremely difficult traders can hedge their risk through strategy diversification, reducing cost basis and staying small.

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