People associate buying puts with being risky and speculative, and they are. But that does not mean that you cannot make money by trading them. In fact there are many reasons why it works to your advantage to buy puts every now and then.

1. Stocks Can Go Down

Stocks do not only go up, they can go down as well. To truly take advantage of all moves you need to be able to make money when stocks go down. Just think about the last recession we have had. If you were bullish your account probably got cut in half or worse. If you where bearish you could have made a killing.

Being able to make money when the markets go up and when they go down is critical to a trader, and puts allow you to do that.

2. Stocks Can Fall Fast

Stocks can fall faster then they go up. This means that buying puts is perfect here. Puts are built for short term profits and stocks fall in short 2-5 day periods. All this leads to the fact that puts can be very valuable when they are used
correctly.

3. Puts Limit Your Loss

Puts help you to limit your possible loss. If you short a stock you could have a very big loss. If a stock gaps up you could potentially lose an unlimited amount of money. On the other hand when you buy a put you already know how much you could possible lose.

If you spend $3 on a put that is it, you can’t lose more than $3 no matter what happens.

4. Volatility Works in Your Favor

Volatility is another factor that helps to determine what an option is priced at. When you buy a call and the stock goes up volatility normally goes down and hurts the value of the call, this means the price of the stock has to go up enough to offset volatility.

When you buy a put and the stock goes down, however volatility works in your favor. This way two factors are at work making the value of your option go up.

For more on put options visit http://www.stocks-simplified.com/put_option.html

For more on stock options visit http://www.stocks-simplified.com/stock_options.html

Author's Bio: 

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site stocks-simplified.com to help others learn.