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Put Options: Protection From the Next Stock Market Crash?

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Stocks soared in 2013, but that has many investors on edge about the prospects for a big correction or even a bear market in 2014. If you want to protect against a big stock market crash, put options can give you the protection you want -- but is it worth the price you'll pay?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at put options and how they work. Dan notes that put options are basically similar to insurance policies, in that you pay an upfront premium for protection from falling markets. If the market does drop, then you can exercise the option and reap benefits. If the market doesn't drop, then you'll often lose your entire premium. Dan points to options available on indexes like the S&P 500 (SNPINDEX: ^GSPC  ) , ETFs like the SPDR S&P 500 (NYSEMKT: SPY  ) or the SPDR Select Financials (NYSEMKT: XLF  ) , as well as individual-stock put options. Dan concludes that options can be pricey and aren't worth having at all times, but they can provide short-term protection when you think you need it most.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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