When you buy shares just like a car or house it is advisable to insure these items to minimise the risk.
In the case of shares from what i understand there is a few ways of doing this.
1. Stop Loss.
This is setting your price where you accept the loss if trade goes against you.
Qu. If you have a stock at say $5 and stop loss at say $4.50 and the price gaps down to $3.80 WHAT HAPPENS?
This is where you buy the Put of a period with a srike price that you will sell the stock at a particular price. EG. Buy put option to sell the stock at $4.00 price drops to $2.00 you sell the stock at $4.00.
Not sure if all this is correct but is there better ways to handle the risk or are these probably the best ways. Have to take into consideration the cost etc using options etc.
If you see a stock you feel is going to go up but want to protect the downside.
Buy the share first or buy the put first then the share?
Buy the share and place stop loss?
Buy the share buy a put option sell a call option?