Protective Put Strategy

A Protective Put is a strategy where you hold a long position in a stock and simultaneously buy a Put Option for the same asset. This acts as an insurance policy. If the stock price drops, the profit from your put option helps offset the losses in your stock portfolio.

• The Setup: You own 100 shares of XYZ.
• The Insurance: You buy 1 Put Option with a strike price slightly below your entry price.
• The Result: If XYZ plummets, you have the right to sell your shares at the strike price, regardless of how low the market goes. Your maximum loss is capped at: (Stock Entry Price - Put Strike Price) + Put Premium Paid.

Use this when you are bullish on a stock for the long term but are worried about short-term market volatility or an upcoming event (like an earnings report) that could cause a temporary dip. It allows you to stay "long" while removing the "catastrophic risk" of a massive drop.