There are a variety of ways to protect a Long Stock position. The approach that you choose depends on the goal for the protection. Here are some examples:
- A Collar (short Calls, long Puts)
- Long Puts
- Long a Put Spread
- Short Calls
Wait a minute. Short Calls? How does that protect anything?
Let me show you a current trade in $AVGO as an example. I am long stock at $54 (since 1/4/2014) and I am short the February 55 Calls at a $2.21 credit. Here is how the short Calls help to provide a cushion:
By having the credit you are provided some “protection” down to $51.79 on the long stock ($54 – $2.21). With that in mind, that would be a good place to locate a Stop today as price is probing the $53 level today.