In fact, both the S&P 500 and the Dow Industrials lost ground last week, marking their first weekly declines since early July.
What's more, the number of individual stocks making new 52-week highs has also fallen sharply. Only 72 issues on the New York Stock Exchange (NYSE) marked new tops last week, compared to 188 the week before and 215 in the week ending August 3.
That begs the question about how investors can protect their gains--particularly in stocks that have been looking a bit "toppy" of late.
Typically, nervous investors choose one of two approaches:
- They simply sell their shares, taking the profits they've built up over the past few months. However, that action can often have undesirable tax consequences - plus, it eliminates the opportunity for added profits if the markets keep on rising.
- They buy protective put options locking in their paper gains- essentially creating an "insurance policy" against future losses. The problem is that can also be quite expensive.
All you do is turn your long stock position into what's known as an "option collar." Here's how it works.
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