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Buying Protective Put Option Strategy

Most people who buy option puts are speculators; however, there are those who use this strategy to hedge stocks. If you buy a put option on an underlying stock which you own already, then you are buying a protective put option.

Buying a protective put option is appropriate when you believe that the underlying stock that you own is about to take a significant fall. Normally, you would buy enough options to cover the number of shares of the underlying stock that you already own.

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