What is a protective put option?

The strike price of the put option acts as a barrier where losses in the underlying stock stop. The ideal situation in a protective put is for the stock price to increase significantly, as the investor would benefit from the long stock position.

What is a protective put?

Protective puts are commonly utilized when an investor is long or purchases shares of stock or other assets that they intend to hold in their portfolio. Typically, an investor who owns stock has the risk of taking a loss on the investment if the stock price declines below the purchase price.

What is a protective put position?

A protective put position is created by buying (or owning) stock and buying put options on a share-for-share basis. In the example, 100 shares are purchased (or owned) and one put is purchased. If the stock price declines, the purchased put provides protection below the strike price. The protection, however, lasts only until the expiration date.