1) Hedging: Protective Put Option Strategy. Put options can be a form of insurance for stocks. If your stocks decrease in value during a specific time period, a put option gives you the right to sell your stock at an agreed-upon price. Investors who wish to protect their portfolio’s value will therefore purchase puts in case prices fall. The action of purchasing a put option while holding the underlying security is called a Protective Put.
2) Bearish: Long Put Option Strategy. Investors can also buy put options without holding the underlying securities, known as a Long Put Option. This allows for greater flexibility and leverage in a bear market. Conversely, the risk of this strategy is that it may lose value in a relatively short amount of time and incur permanent loss.