Downside Protection

Downside Protection

Generally used in connection with covered call writing, this is the cushion against loss, in case of a price decline by the underlying security, that is afforded by the written call option. Alternatively, it may be expressed in terms of the distance the stock could fall before the total position becomes a loss (an amount equal to the option premium), or it can be expressed as percentage of the current stock price.

Downside Protection

A position on a security that hedges risk such that it protects the holder from loss under most circumstances. One of the more common forms of downside protection is a covered option, in which one takes a long position on an option on a security that the investor already owns. This limits the loss that the investor could sustain on the security.

downside protection

An investment position that seeks to reduce losses resulting from the decline of a stock or a fall in the overall market. For example, put options provide downside protection against a decline in the price of the underlying stock. Likewise, writing covered call options can provide partial downside protection against price declines.
References in periodicals archive ?
Diversifying with assets that provide uncorrelated market exposure is the mainstay of most investment managers, in terms of attempting to reduce risk but a more modern approach is to also include certain investments that provide simple, downside protection.
The combination of upside potential and downside protection is attractive to buyers,' said David Rosuck, vice president of marketing communications for the Life Insurance Division of Pacific Life Insurance Company.
com allows users to customize returns on investments by choosing their personal balance of upside growth opportunities with downside protection.
RBC Conservative Growth & Income Fund is suitable for investors with a medium to long-term investment horizon who are looking for downside protection, low volatility and steady growth.
The CEO of Al Meezan Investments, Mohammad Shoaib, CFA, while announcing the launch of the plan said "As more and more investors are looking to capture upside of the stock market and the same time want downside protection, Al Meezan has continued to launch capital preservation funds and plans.
They tout the product as one with unlimited upside potential and guaranteed downside protection.
Interest is credited to the policy based on the performance of an index, most often the S&P 500, with both upside opportunity and downside protection.
Local investors' portfolios are still dominated by regional equities and bonds, but they are now looking to spread risk across asset classes, seeking longer-term returns and greater downside protection.
For downside protection we suggest sticking with gold names as their valuations still lag far behind gains in the metal's price.
It has been known to provide good downside protection and in 2008, then fund manager Prashant Jain accomplished it without plunging into large caps or resorting to aggressive cash calls.
Indexed policies are a newer form of permanent cash value life insurance with available downside protection.
This synergy of two investment approaches has the potential to deliver strong performance and provide crucial downside protection across diverse market conditions, a company statement said.