A customer owning 100 shares of stock could receive protection by:
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Buying a put
If the writer of a put on a listed stock is exercised, the writer must:
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Deliver cash, take delivery of stock
Buy stop orders:
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Protect a profit on short positions, limit loss on short positions, acquire
stock if a resistance level is broken. They are placed at a price higher than
the current market. If the market rises, the stop price is "elected/triggered"
and becomes a market order to buy. Once elected it will be executed at
the market price as soon as possible
Long the stock and short the call is an appropriate strategy in a:
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Stable market. You sell the call contract to generate extra income. If the
customer expects the market to rise, they would not write true call. If they
expect it to fall, they would sell the stock and buy a put as a hedge
The maximum gain for the holder of a put is:
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The strike price minus premium paid
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Buying a put
If the writer of a put on a listed stock is exercised, the writer must:
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Deliver cash, take delivery of stock
Buy stop orders:
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Protect a profit on short positions, limit loss on short positions, acquire
stock if a resistance level is broken. They are placed at a price higher than
the current market. If the market rises, the stop price is "elected/triggered"
and becomes a market order to buy. Once elected it will be executed at
the market price as soon as possible
Long the stock and short the call is an appropriate strategy in a:
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Stable market. You sell the call contract to generate extra income. If the
customer expects the market to rise, they would not write true call. If they
expect it to fall, they would sell the stock and buy a put as a hedge
The maximum gain for the holder of a put is:
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The strike price minus premium paid