So, a rational investor might use options in order to hedge a position that perhaps appreciated significantly in the past and is now overvalued. However, an option protects from the downside and can be a great insurance if it is cheap. The lower the market volatility is and the higher investors’ complacency is, the cheaper the options are. Selling put or covered call options when balancing one’s portfolio is also a useful strategy in certain circumstances but that goes beyond the scope of this book.
