The theoretical knowledge on how to “insure” your portfolio has been around since 1973 when Fisher Black and Myron Scholes published a paper, the basis for which a Nobel Prize in Economics was awarded fourteen years later. Their work created one of the most important concepts in modern financial theory, the mathematical model for pricing derivative investment instruments, including options.
A put option gives you the right to sell a stock at a pre‐defined price for a pre‐defined period of time. You don’t have to sell the stock; you can sell the protection back into the market and receive the cash. It is like an insurance policy, but like all insurance it comes at a price.
The ASX offers investor education at their web‐site for the “do it yourself” alternative.
