Protective Put
Bullish (Hedged)Use Zuviz's free options visualizer to build this strategy instantly. Buy a put to protect your long stock position. Like insurance against a market crash.
⚡ Key Takeaways
- Market Outlook: Bullish but want insurance (protective hedge)
- Max Profit: Unlimited (own stock + put protection)
- Max Loss: Stock purchase price - put strike + put premium
- Breakeven: Stock cost + put premium
- Best for: Protecting gains on stock you own, hedging before events
- Greeks Impact: Negative Theta (paying for protection), positive Vega
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📊 Payoff Diagram
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🏗️ Strategy Structure
| Position | Action | Type | Strike/Price | Value |
|---|---|---|---|---|
| Stock | Own (Long) | 100 Shares | $100 | $10,000 |
| Option | Buy | Put | $95 | $2.00 |
Insurance Cost: $2.00/share ($200)
Floor: No matter how far the stock falls, you can sell at $95
🧮 Key Calculations
🎯 When to Use This Strategy
- Before earnings: Protect against a negative surprise
- Large unrealized gains: Lock in profits while staying long
- Market uncertainty: Hedge during volatile periods
- Long-term hold: Want to hold but worried about short-term risk
📈 Greeks Impact
Delta (Δ)
Positive - You want the stock to rise.
Theta (Θ)
Negative (usually) - Time decay hurts long positions, helps short ones.
Vega (ν)
Depends - Long strategies want rising IV, short strategies want falling IV.
⚖️ Pros & Cons
Pros
- Protects stock downside
- Unlimited upside remains
- Sleep well at night
Cons
- Cost of insurance
- Drags performance in bull market
- Expires
📝 Real-World Example
Stock: Own SPY at $400. Trade: Buy $380 Put for $5.00.
floor: Your exit is guaranteed at $380 minus premium.