Moomoo is Featured by Forbes about a Guide to Buying Protection for Returns

By John Dobosz, November 16, 2024

(Forbes) -- Wizards of wealth creation like Warren Buffett counsel that the key to stock market success is to buy into a great business, sit back and let it make you rich. It’s sound advice, but even people as patient as Buffett sell stocks from time to time, as Berkshire Hathaway did in 2024, trimming stakes in big gainers like Apple and Bank of America, and completely ditching other stocks like Snowflake.

“If you have a $100 stock with a $90 stop and it opens tomorrow at $75, you’re selling at $75, not $90,” says Justin Zacks, vice president at online trading platform Moomoo Technologies. “Another problem with stop losses is during volatile markets, a stop loss gets hit when the stock is down on a very bad day—but the next day it goes right back up and you get stopped out at the bottom.”

Buying put options provides protection, but the premiums can eat into returns. A popular way to finance the cost of put protection is to earn money by surrendering some upside potential in the stock by writing covered calls, creating a position called a “collar.” This is what Mark Cuban famously did in 1999 after he sold Broadcast.com and got paid in Yahoo stock. He wrote covered calls to fund his purchase of puts, which skyrocketed in value as Yahoo shares deflated during the dot-com implosion.

To read more, please click here: Protecting Your Nvidia Gains And Other Smart Option Strategies