Investing with options - Securing your tech stock gains with simple hedging strategies 2/2

Options 10 minutes to read
Koen Hoorelbeke

Investment and Options Strategist

Résumé:  In part two of our guide, we expand on how to use put options as a "profit-insurance" for each of the Magnificent 7. Tailoring strategies for each stock, we help you secure your portfolio against volatility, ensuring your tech investments remain robust through market ups and downs.


Investing with options: Expanding your investment shield with put options across the Magnificent 7


Introduction

Welcome back to the second installment of our series on safeguarding your investments in the tech sector's elite—the Magnificent 7. In our previous article, we laid the groundwork by using Microsoft as a blueprint to understand how put options function as protective insurance for your stock gains. Now, we're ready to broaden our horizon, applying the insights gained to the entire lineup of these tech giants.

From Apple to Tesla, we'll navigate the options landscape for each of these market leaders, providing you with a toolkit of strategies to maintain the robust health of your portfolio, regardless of market tremors. We'll explore varied expiry dates and strike prices, tailoring the hedge to fit the unique position of each stock in your collection.

Prepare to fortify your investment knowledge further, as we delve into the practical steps and considerations for selecting put options that align with your investment goals and risk appetite. Let's continue our journey towards confident, informed investing in an unpredictable market.

You can find part 1 of this serie here: Investing with options - Securing your tech stock gains with simple hedging strategies - 1of2

Important disclaimer: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.


You can jump directly to one of the Magnificent 7, by clicking on one of the links below:

 
msft

Microsoft Corporation (MSFT)

Underlying Stock:

  • Ticker: MSFT (Microsoft Corporation)
  • Last Traded Price: $404.23

Option Trade Details:

  • Type: Put (Long Position)
  • Strike Price: $415
  • Expiration Date: 17-May-2024
  • Premium (Price to Pay): $21.50 per share
  • Quantity: 1 contract (100 shares equivalent)
  • Total Premium Paid: $2,150.00 USD

Maximum Risk:

  • The maximum risk is limited to the premium paid for the put option, which is $2,150.00.

Maximum Potential Profit:

  • The profit potential is substantial if MSFT declines significantly, capped only by the company's stock price potentially going to zero, leading to a theoretical maximum profit of $39,350.00 (excluding the cost of the premium).

Profit If Stock Price Drops by 5%, 10%, and 15% from the Last Traded Price:

  • 5% Drop: New stock price = $404.23 * 0.95 = $383.82

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($415 - $383.82) * 100] - $2,150.00
    • Profit = $3,118.00 - $2,150.00 = $968.00

  • 10% Drop: New stock price = $404.23 * 0.90 = $363.81

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($415 - $363.81) * 100] - $2,150.00
    • Profit = $5,119.00 - $2,150.00 = $2,969.00

  • 15% Drop: New stock price = $404.23 * 0.85 = $343.80

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($415 - $343.80) * 100] - $2,150.00
    • Profit = $7,120.00 - $2,150.00 = $4,970.00 

Strategy Summary:

  • This long put option can be used to hedge against a potential decline in MSFT's stock price. If MSFT's stock price drops by 5%, 10%, or 15%, the put option will yield profits of $968.00, $2,969.00, and $4,970.00, respectively, after considering the cost of the option. This strategy provides a risk management tool for investors who want to protect against downside risk while maintaining a known and limited potential loss.

aapl


Apple Inc. (AAPL)

Underlying Stock:

  • Ticker: AAPL (Apple Inc.)
  • Last Traded Price: $182.33

Option Trade Details:

  • Type: Put (Long Position)
  • Strike Price: $195
  • Expiration Date: 17-May-2024
  • Premium (Price to Pay): $14.00 per share
  • Quantity: 1 contract (100 shares equivalent)
  • Total Premium Paid: $1,400.00 USD

Maximum Risk:

  • The maximum risk is limited to the premium paid for the put option, which is $1,400.00.

Maximum Potential Profit:

  • The profit potential is substantial if AAPL declines significantly, capped only by the company's stock price potentially going to zero, leading to a theoretical maximum profit of $18,100.00 (excluding the cost of the premium).

Profit If Stock Price Drops by 5%, 10%, and 15% from the Last Traded Price:

  • 5% Drop: New stock price = $182.33 * 0.95 = $173.21

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($195 - $173.21) * 100] - $1,400.00
    • Profit = $2,179.00 - $1,400.00 = $779.00

  • 10% Drop: New stock price = $182.33 * 0.90 = $164.10

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($195 - $164.10) * 100] - $1,400.00
    • Profit = $3,090.00 - $1,400.00 = $1,690.00

  • 15% Drop: New stock price = $182.33 * 0.85 = $154.98

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($195 - $154.98) * 100] - $1,400.00
    • Profit = $4,002.00 - $1,400.00 = $2,602.00

Strategy Summary:

  • This long put option acts as a hedge against a potential decline in AAPL's stock price. If AAPL's stock price drops by 5%, 10%, or 15%, the put option will yield profits of $779.00, $1,690.00, and $2,602.00, respectively, after considering the cost of the option. This strategy can be employed by investors who are looking to protect their position against downside risk with a defined maximum loss.

nvda


NVIDIA Corporation (NVDA)

Underlying Stock:

  • Ticker: NVDA (Nvidia Corporation)
  • Last Traded Price: $731.73

Option Trade Details:

  • Type: Put (Long Position)
  • Strike Price: $755
  • Expiration Date: 17-May-2024
  • Premium (Price to Pay): $80.00 per share
  • Quantity: 1 contract (100 shares equivalent)
  • Total Premium Paid: $8,000.00 USD

Maximum Risk:

  • The maximum risk is limited to the premium paid for the put option, which is $8,000.00.

Maximum Potential Profit:

  • The profit potential is significant if NVDA declines substantially, capped only by the company's stock price potentially going to zero, leading to a theoretical maximum profit of $67,500.00 (excluding the cost of the premium).

Profit If Stock Price Drops by 5%, 10%, and 15% from the Last Traded Price:

  • 5% Drop: New stock price = $731.73 * 0.95 = $695.14

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($755 - $695.14) * 100] - $8,000.00
    • Profit = $5,986.00 - $8,000.00 = -$2,014.00 (a loss since the stock drop does not cover the premium paid)

  • 10% Drop: New stock price = $731.73 * 0.90 = $658.56

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($755 - $658.56) * 100] - $8,000.00
    • Profit = $9,644.00 - $8,000.00 = $1,644.00

  • 15% Drop: New stock price = $731.73 * 0.85 = $622.47

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($755 - $622.47) * 100] - $8,000.00
    • Profit = $13,253.00 - $8,000.00 = $5,253.00

Strategy Summary:

  • This long put option acts as a hedge against a potential decline in NVDA's stock price. If NVDA's stock price drops by 5%, 10%, or 15%, the put option would result in a loss of $2,014.00, a profit of $1,644.00, and a profit of $5,253.00, respectively, after considering the cost of the option. This strategy is for investors who anticipate a downturn in NVDA's market value and wish to hedge against this risk with a known maximum potential loss.

googl


Alphabet Inc. (GOOGL)

Underlying Stock:

  • Ticker: GOOGL (Alphabet Inc. - A Shares)
  • Last Traded Price: $141.04

Option Trade Details:

  • Type: Put (Long Position)
  • Strike Price: $160
  • Expiration Date: 17-May-2024
  • Premium (Price to Pay): $19.50 per share
  • Quantity: 1 contract (100 shares equivalent)
  • Total Premium Paid: $1,950.00 USD

Maximum Risk:

  • The maximum risk is limited to the premium paid for the put option, which is $1,950.00.

Maximum Potential Profit:

  • The profit potential is significant if GOOGL declines substantially, capped only by the company's stock price potentially going to zero, leading to a theoretical maximum profit of $14,050.00 (excluding the cost of the premium).

Profit If Stock Price Drops by 5%, 10%, and 15% from the Last Traded Price:

  • 5% Drop: New stock price = $141.04 * 0.95 = $133.99

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($160 - $133.99) * 100] - $1,950.00
    • Profit = $2,601.00 - $1,950.00 = $651.00

  • 10% Drop: New stock price = $141.04 * 0.90 = $126.94

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($160 - $126.94) * 100] - $1,950.00
    • Profit = $3,306.00 - $1,950.00 = $1,356.00

  • 15% Drop: New stock price = $141.04 * 0.85 = $119.88

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($160 - $119.88) * 100] - $1,950.00
    • Profit = $4,012.00 - $1,950.00 = $2,062.00

Strategy Summary:

  • This long put option acts as a hedge against a potential decline in GOOGL's stock price. If GOOGL's stock price drops by 5%, 10%, or 15%, the put option will yield profits of $651.00, $1,356.00, and $2,062.00, respectively, after considering the cost of the option. This strategy is for investors who are concerned about downside risk in GOOGL's market value and want a risk management tool with a known maximum potential loss.

amzn


Amazon.com, Inc. (AMZN)

Underlying Stock:

  • Ticker: AMZN
  • Last Traded Price: $168.05

Option Trade Details:

  • Type: Put (Long Position)
  • Strike Price: $185
  • Expiration Date: 17-May-2024
  • Premium (Price to Pay): $19.70 per share
  • Quantity: 1 contract (100 shares equivalent)
  • Total Premium Paid: $1,970.00 USD

Maximum Risk:

  • The maximum risk is limited to the premium paid for the put option, which is $1,970.00.

Maximum Potential Profit:

  • The profit potential is significant if AMZN declines substantially, capped only by the company's stock price potentially going to zero, leading to a theoretical maximum profit of $16,530.00 (excluding the cost of the premium).

Profit If Stock Price Drops by 5%, 10%, and 15% from the Last Traded Price:

  • 5% Drop: New stock price = $168.05 * 0.95 = $159.65

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($185 - $159.65) * 100] - $1,970.00
    • Profit = $2,535.00 - $1,970.00 = $565.00

  • 10% Drop: New stock price = $168.05 * 0.90 = $151.25

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($185 - $151.25) * 100] - $1,970.00
    • Profit = $3,375.00 - $1,970.00 = $1,405.00

  • 15% Drop: New stock price = $168.05 * 0.85 = $142.84

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($185 - $142.84) * 100] - $1,970.00
    • Profit = $4,216.00 - $1,970.00 = $2,246.00

Strategy Summary:

  • The long put option on AMZN is a defensive play to guard against a potential drop in the stock price. Should the stock price fall by 5%, 10%, or 15%, the put option would result in profits of $565.00, $1,405.00, and $2,246.00, respectively, factoring in the cost of the option.

meta


Meta Platforms, Inc. (META)

Underlying Stock:

  • Ticker: META
  • Last Traded Price: $471.20

Option Trade Details:

  • Type: Put (Long Position)
  • Strike Price: $510
  • Expiration Date: 17-May-2024
  • Premium (Price to Pay): $54.00 per share
  • Quantity: 1 contract (100 shares equivalent)
  • Total Premium Paid: $5,400.00 USD

Maximum Risk:

  • The maximum risk is limited to the premium paid for the put option, which is $5,400.00.

Maximum Potential Profit:

  • The profit potential is significant if META declines substantially, capped only by the company's stock price potentially going to zero, leading to a theoretical maximum profit of $45,600.00 (excluding the cost of the premium).

Profit If Stock Price Drops by 5%, 10%, and 15% from the Last Traded Price:

  • 5% Drop: New stock price = $471.20 * 0.95 = $447.64

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($510 - $447.64) * 100] - $5,400.00
    • Profit = $6,236.00 - $5,400.00 = $836.00

  • 10% Drop: New stock price = $471.20 * 0.90 = $424.08

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($510 - $424.08) * 100] - $5,400.00
    • Profit = $8,592.00 - $5,400.00 = $3,192.00

  • 15% Drop: New stock price = $471.20 * 0.85 = $400.52

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($510 - $400.52) * 100] - $5,400.00
    • Profit = $10,948.00 - $5,400.00 = $5,548.00

Strategy Summary:

  • The long put option on META provides a hedge against a decline in stock price. If the stock price decreases by 5%, 10%, or 15%, the put option yields profits of $836.00, $3,192.00, and $5,548.00, respectively, after the cost of the option is considered. This strategy could be useful for investors who are bearish on META and wish to capitalize on potential downward movements in its stock price while having a fixed and limited downside risk.

tsla


Tesla, Inc. (TSLA)

Underlying Stock:

  • Ticker: TSLA
  • Last Traded Price: $199.68

Option Trade Details:

  • Type: Put (Long Position)
  • Strike Price: $215
  • Expiration Date: 17-May-2024
  • Premium (Price to Pay): $26.50 per share
  • Quantity: 1 contract (100 shares equivalent)
  • Total Premium Paid: $2,650.00 USD

Maximum Risk:

  • The maximum risk is limited to the premium paid for the put option, which is $2,650.00.

Maximum Potential Profit:

  • The profit potential is significant if TSLA declines substantially, capped only by the company's stock price potentially going to zero, leading to a theoretical maximum profit of $18,850.00 (excluding the cost of the premium).

Profit If Stock Price Drops by 5%, 10%, and 15% from the Last Traded Price:

  • 5% Drop: New stock price = $199.68 * 0.95 = $189.70

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($215 - $189.70) * 100] - $2,650.00
    • Profit = $2,530.00 - $2,650.00 = -$120.00 (a loss since the stock drop does not cover the premium paid)

  • 10% Drop: New stock price = $199.68 * 0.90 = $179.71

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($215 - $179.71) * 100] - $2,650.00
    • Profit = $3,529.00 - $2,650.00 = $879.00

  • 15% Drop: New stock price = $199.68 * 0.85 = $169.73

    • Profit = [(Strike Price - New Stock Price) * Quantity] - Premium Paid
    • Profit = [($215 - $169.73) * 100] - $2,650.00
    • Profit = $4,527.00 - $2,650.00 = $1,877.00

Strategy Summary:

  • The long put option on TSLA serves as a hedge against a price decline. If TSLA's stock price decreases by 5%, 10%, or 15%, the put option results in a loss of $120.00, a profit of $879.00, and a profit of $1,877.00, respectively, after accounting for the premium paid. This strategic position could be beneficial for investors looking to protect against or profit from a downturn in TSLA's stock price, with a clear maximum risk at the cost of the option premium.

Conclusion: Embracing Flexibility in Your Hedging Strategy

As we wrap up our exploration of using put options to protect investments in the Magnificent 7, it's crucial to remember that the strategies and examples provided throughout this series are intended to serve as inspiration and a starting point for your own investment journey. The financial markets are in constant flux, and it's very likely that by the time you're reading this article, the prices of the stocks we've discussed—and consequently, the cost of associated options—will have changed.

This reality doesn't diminish the value of the insights shared but rather underscores the importance of understanding the underlying thought process. Adaptability and informed decision-making are key. You may find that different strike prices or even different expiry dates better suit your needs as market conditions evolve. The goal of this series has been to equip you with the knowledge to navigate these decisions confidently, tailoring your approach to option trading to fit your unique investment profile and objectives.

Remember, the journey to becoming a savvy investor is continuous. As you gain experience and insight, your strategies will naturally adapt to reflect your growing expertise and the ever-changing market landscape. We encourage you to use what you've learned as a foundation, building upon it with further research as needed. Your investment path is uniquely yours—make informed choices, stay flexible, and keep your goals in sight.


For continuous insights and updates on market/options strategies, interact with me/follow my social media account on Threads.


Previous "Investing with options" articles: 

Listen to our brand new podcast: "Saxo Options Talk"

Related articles:

Previous "Volatility reports": 

Previous "What are your options" articles: 


Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks. In Saxo Bank's Terms of Use you will find more information on this in the Important Information Options, Futures, Margin and Deficit Procedure. You can also consult the Essential Information Document of the option you want to invest in on Saxo Bank's website.

This article may or may not have been enriched with the support of advanced AI technology, including OpenAI's ChatGPT and/or other similar platforms. The initial setup, research and final proofing are done by the author.

Avertissement sur la responsabilité de Saxo

Toutes les entités du Groupe Saxo Banque proposent un service d’exécution et un accès à l’analyse permettant de visualiser et/ou d’utiliser le contenu disponible sur ou via le site Internet. Ce contenu n’a pas pour but de modifier ou d’étendre le service réservé à l’exécution et n’est pas destiné à le faire. Cet accès et cette utilisation seront toujours soumis (i) aux conditions générales d’utilisation ; (ii) à la clause de non-responsabilité ; (iii) à l’avertissement sur les risques ; (iv) aux règles d’engagement et (v) aux avis s’appliquant aux actualités et recherches de Saxo et/ou leur contenu, en plus (le cas échéant) des conditions régissant l’utilisation des liens hypertextes sur le site Internet d’un membre du Groupe Saxo Banque via lequel l’accès aux actualités et recherches de Saxo est obtenu. Ce contenu n’est donc fourni qu’à titre informatif. Plus particulièrement, aucun conseil n’entend être donné ou suivi tel qu’il est donné ni soutenu par une entité du Groupe Saxo Banque. De même, aucun conseil ne doit être interprété comme une sollicitation ou un encouragement visant à s’abonner à, vendre ou acheter des instruments financiers. Toutes les opérations boursières ou les investissements que vous effectuez doivent être le fruit de vos décisions spontanées, éclairées et personnelles. De ce fait, aucune entité du Groupe Saxo Banque ne pourra être tenue responsable de vos éventuelles pertes suite à une décision d’investissement prise en fonction des informations disponibles dans les actualités et recherches de Saxo ou suite à l’utilisation des actualités et recherches de Saxo. Les ordres donnés et les opérations boursières effectuées sont considérés comme donnés ou effectués pour le compte du client avec l’entité du Groupe Saxo Banque opérant dans la juridiction de résidence du client et/ou chez qui le client a ouvert et alimenté son compte de transactions. Les actualités et recherches de Saxo ne contiennent pas (et ne doivent pas être interprétées comme contenant) de conseils en matière de finance, d’investissement, d’impôts, de transactions ou de quelque autre nature proposés, recommandés ou soutenus par le Groupe Saxo Banque. Elles ne doivent pas non plus être interprétées comme un registre de nos tarifs d’opérations boursières ou comme une offre, incitation ou sollicitation d’abonnement, de vente ou d’achat du moindre instrument financier. Dans la mesure où tout contenu est interprété comme une recherche d’investissement, vous devez noter et accepter que le contenu ne visait pas et n’a pas été préparé conformément aux exigences légales destinées à promouvoir l’indépendance de la recherche d’investissement et, en tant que tel, serait considéré comme une communication marketing en vertu des lois concernées.

Veuillez lire nos clauses de non-responsabilité :
Notification sur la recherche en investissement non-indépendant (https://www.home.saxo/legal/niird/notification)
Clause de non-responsabilité complète (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Clause de non-responsabilité complète (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Suisse) SA
The Circle 38
CH-8058
Zürich-Flughafen
Suisse

Nous contacter

Select region

Suisse
Suisse

Le trading d’instruments financiers comporte des risques. Les pertes peuvent dépasser les dépôts sur les produits de marge. Vous devez comprendre comment fonctionnent nos produits et quels types de risques ils comportent. De plus, vous devez savoir si vous pouvez vous permettre de prendre un risque élevé de perdre votre argent. Pour vous aider à comprendre les risques impliqués, nous avons compilé une divulgation des risques ainsi qu'un ensemble de documents d'informations clés (Key Information Documents ou KID) qui décrivent les risques et opportunités associés à chaque produit. Les KID sont accessibles sur la plateforme de trading. Veuillez noter que le prospectus complet est disponible gratuitement auprès de Saxo Bank (Suisse) SA ou directement auprès de l'émetteur.

Ce site web est accessible dans le monde entier. Cependant, les informations sur le site web se réfèrent à Saxo Bank (Suisse) SA. Tous les clients traitent directement avec Saxo Bank (Suisse) SA. et tous les accords clients sont conclus avec Saxo Bank (Suisse) SA et sont donc soumis au droit suisse.

Le contenu de ce site web constitue du matériel de marketing et n'a été signalé ou transmis à aucune autorité réglementaire.

Si vous contactez Saxo Bank (Suisse) SA ou visitez ce site web, vous reconnaissez et acceptez que toutes les données que vous transmettez, recueillez ou enregistrez via ce site web, par téléphone ou par tout autre moyen de communication (par ex. e-mail), à Saxo Bank (Suisse) SA peuvent être transmises à d'autres sociétés ou tiers du groupe Saxo Bank en Suisse et à l'étranger et peuvent être enregistrées ou autrement traitées par eux ou Saxo Bank (Suisse) SA. Vous libérez Saxo Bank (Suisse) SA de ses obligations au titre du secret bancaire suisse et du secret des négociants en valeurs mobilières et, dans la mesure permise par la loi, des autres lois et obligations concernant la confidentialité dans le cadre des divulgations de données du client. Saxo Bank (Suisse) SA a pris des mesures techniques et organisationnelles de pointe pour protéger lesdites données contre tout traitement ou transmission non autorisés et appliquera des mesures de sécurité appropriées pour garantir une protection adéquate desdites données.

Apple, iPad et iPhone sont des marques déposées d'Apple Inc., enregistrées aux États-Unis et dans d'autres pays. App Store est une marque de service d'Apple Inc.