A protective put (also called married put) is when you own stock and buy a put option to protect against downside risk.
How It Works
You own 100 shares of Apple at $150. Stock market looks shaky.
- Buy a $140 put for $2 ($200 cost)
- Now you're protected below $140
- If stock falls to $130, your put is worth $10, offsetting the $20 loss on stock
- If stock rises to $160, you profit $10 on stock minus $2 for insurance
Risk Profile
Maximum Loss: The difference between stock cost and put strike minus the put premium = $150 - $140 + $2 = $12
Maximum Profit: Unlimited if stock rises
Breakeven: Stock price + put premium paid = $152
Why Use It
- Sleep at night (you have a price floor)
- Protect unrealized gains
- Temporary protection until uncertainty passes
- Insurance that you can afford to let lapse
Challenges
- Costs real money (the put premium)
- Reduces your profit if stock rises
- Expires, so you need to keep renewing it
When to Use
- Before a big market event (FOMC meeting, earnings for sector)
- When you have huge unrealized gains
- During bear markets
- When your conviction wavers but you don't want to sell
Related: Married Put, Collar, Hedging
