Worried About an AI Bubble? Here’s Exactly How to Limit Stock Risk by Hedging With Put Options

Every investor loves to talk about profits, but the best traders talk about protection. That’s the heart of hedging: managing risk before it manages you.

In his video How to Hedge Your Portfolio with Options (Before It’s Too Late!), Rick Orford explains how investors can use long puts as “insurance” against market losses — and how to find and price those trades directly using Barchart’s Long Put Screener.

Hedging simply means protecting your unrealized profits from downside risk, whether that’s a potential market correction or another unexpected event.

Think of it like insurance for your investments. You pay a small amount upfront to protect a much larger position.

“Like insurance, you hope you never need it,” Rick says. “But it’s good to know it’s there.”

A put option gives the buyer the right (but not the obligation) to sell the underlying asset at a predetermined price (the strike price) before the expiration date.

Buying a long put protects you from downside risk, because if your stock collapses, you can still sell it at the strike price you chose.

Let’s walk through Rick’s example:

• You own 100 shares of Microsoft (MSFT) purchased at $500 per share.

• Without a hedge, if MSFT drops to $450, you could lose $50 per share — a $5,000 hit.

• But by hedging with a $490-strike put, you secure the right to sell those MSFT shares at no less than $490 anytime before expiration, should the stock fall below that price.

That means no matter how far the stock falls, your maximum loss is capped.

That downside protection isn’t free, of course. In this example, the $490 put might cost a premium of $17.50 per share ($1,750 per contract), but it can save you from much larger losses.

“If Microsoft drops, your long put protects you just like insurance,” Rick explains. “You might spend a little upfront, but you’re preserving capital.”

Finding the right hedge doesn’t have to be complicated. Rick walks through the process step-by-step using Barchart’s options tools.

Here’s how: