Buy a long term Long Put option.
Steps Make sure the trend is ascending or stagnating at a certain level. Exit: When the share closes below the strike price, the Short Put will be exercised automatically. The investor then sells the Long Put option, buys shares on the market, and then resells them on the market again.
If the share price is above the strike price but above the lower Stop Loss at expiration, then the Short Put option should be left to expire worthless and the received premium should be kept.
If the share price is above the upper Stop Loss at expiration then the Long Put option should be sold or the trader should start trading in opposite position.
Time decay: Time decay has a mixed effect on the value.
Advantages and disadvantages Income on a monthly basis. The potential return is larger than for a Covered Put or a Naked Put strategy.
The investor can profit from share prices moving within given limits as well. Disadvantages: In case of increasing share prices, it has an upper limit.
In case of large increase in share prices, it can generate losses. Mitigation of losses: Close the position the above-mentioned way.