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A broker will set up a transaction under which you buy a "put" and sell a "call" on your stock.
Then, he said, the investor could buy a put option to limit his loss in the unexpected event of a market plunge.
For example, a person who buys a stock hoping to sell it later at a higher price may also buy a put as a hedge against a fall in price.
For instance, it would cost nearly 4 percent in premium to buy a put option that starts to pay off after the market falls 15 percent over a one-year period.
An investor can still buy a put option to hedge against losses, but buying one for a stock owned less than 12 months will erase all of the accumulated time the stock has been owned before it can qualify for the lower long-term capital gains rate, Mr. Willens said.
Buy a put.
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A hedge fund buys a put option on a stock.
The strategy basically involves buying a put and selling a call option on a stock that you own.
But even so, the public has bought a put option on those policies, and parties have to pay up whenever the public eventually cashes it in.
It has arranged with investment bank Lehman Brothers to sell its stake by buying a put option - the right to sell 25m shares at a certain price.
Like a short sale, buying a put option is another way to profit from a stock price decline, and many Emulex puts were bought just before and just after the fake release was issued.
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