Thanksgiving is gone, with Christmas Holidays and New Years to come...

Seasonally, December is one of the most profitable stock months of the year. There is a 60-70% chance of a market advance. It is generally followed by a market correction in months to follow. Therefore, it makes sense to consider hedging the gains as the month moves on. Markets don't just go up, they have corrections.

Writing short term covered calls is one popular method of earning income and providing a short-term hedge against a decline in stock prices. However, selling covered calls provides only limited downside protection. Covered calls can also limit upside gains if your sell to open is mistimed.

A more effective hedging strategy is to buy puts. When writing options like covered calls, the expiration dates are short term. Generally only weeks out in time to take advantage of the time decay. When buying put options, expiration dates are generally months out in time. As mentioned in our hedge manual "The Blueprint" we suggest buying the put with an expiration date 6 months or more out in time. The strike price selected for the put is based on the risk you are willing to tolerate. Higher put strike prices relative to the stock price provide greater downside protection.

There is a tool in Poweroptions to help select the proper put strike price depending on risk. Just click the married put tab and then search by symbol (search by symbol). If you need help selecting the correct married put and expiration date, just call our support line at 302-992-7971 during the market hours or set up a coaching session.