Options: What to Remember

Before touching options, nail these fundamentals:

• Put options gain value when prices drop — they're your portfolio's seat belt
• Premiums are the cost of protection, and they're gone whether you need the insurance or not
• Strike price is your safety net level — the price at which your insurance kicks in
• Buying puts is straightforward; selling options is an entirely different game with unlimited downside potential
• Most long-term investors don't need options at all — a diversified portfolio and long time horizon provide natural protection

Options are a powerful tool, but like any tool, they can cause damage if used without understanding.