In Today's Traders Exclusive, Randall Liss explains how call options can be effective insurance against upside moves in the case of selling a stock prematurely. By using AAPL as case study, which was trading at 107.75 this morning, let's assume we wanted to sell a long position because AAPL is at all-time highs and we want to take our profit. We could go ahead and sell the stock, then buy out of the money calls two months out - in this case December 110 calls for $2. If AAPL goes above 110, the call kicks in. If AAPL doesn't go above 110, you only miss the last 2.25% of the up-move, thus selling out near the highs. It's an effective strategy for minimizing the risk of holding into corrections.
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