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3 Puts to Save Yourself From a Possible Correction

The market is overvalued, and using puts to hedge your position may make sense

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By virtually every metric, the broad market is overvalued. Stock prices have historically correlated to earnings over the long-term. Of course, the market can be overvalued or undervalued compared to the long-term mean for periods of time.

3 Puts to Save Yourself From a Possible Correction
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However, when we look at earnings expectations for the S&P 500 and then look at the price-earnings ratio of the market, we see the P/E is about 20% higher than earnings indicate.

That means it may be time to buy some puts. Puts are options bets. You buy puts if you think a stock or an index is going to go down.

Some investors use puts to just make a bet on the direction of the market to make money. Others use puts to hedge their long positions. In fact, some will buy puts on indices to hedge long positions in specific stocks.

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