Protective Put

Buy a put against shares you own as a price floor — portfolio insurance that caps your downside.

A protective put (a.k.a. married put) is insurance for a long stock position: you buy a put so your shares can't fall below a known floor.

Market outlook

Long-term bullish but worried about near-term downside — earnings, macro events, or locking in gains without selling.

Construction

• Own 100 shares at cost $S_0$.
• Buy 1 put at strike $K$ for premium $P$.

Risk / reward

• Floor: below $K$, every dollar lost on the shares is offset by the put. Your worst case is: $\text{Max loss} = (S_0 - K) + P$
• Upside: unlimited, minus the cost of the put $P$.
• Breakeven: $\text{BE} = S_0 + P$

When to use it

• Protecting unrealized gains you don't want to sell (e.g., for tax reasons).
• Holding through a known binary event while staying invested.

Risks & management

• Cost drag: the premium is a recurring expense that lowers returns in calm markets.
• Choose the strike like a deductible: higher $K$ = more protection but more cost.
• A collar (next module) finances this put by selling a call.