Protective Put

Shares held with a put bought against them: the put sets a floor under the share price, and its premium is what that floor costs.

Also called Married put, Stock insurance

Outlook

Bullish

Family

Income

Level

Novice

Legs

2 legs

Expirations

1 expiration

Opens for

Debit

Maximum profit

Unlimited

Maximum loss

Limited

Requires shares

Yes

Legs at the reference strikes this page's diagrams are drawn from

Leg	Side	Contract	Ratio	How the strike is chosen
	Long	Shares	1
A	Long	Put 97.5	1	Delta 30

What it is

100 shares held, and one put bought against them at A. Below A the put gains what the shares lose, so the position stops falling; above A the put expires worthless and the shares carry on as they were, less what the put cost.

It is the one structure here that leaves the upside untouched. The fact box says Unlimited for maximum profit, and that is not a rounding: nothing is written against the shares, so nothing caps them.

The payoff

At expiration

A rising line that flattens below the long put strike: the position tracks the shares above A and is flat at its maximum loss below it.

Two regions:

• Above A — the put expires worthless. The position is the shares less the premium paid, so it tracks the stock a fixed distance below it.
• Below A — every dollar lost on the shares is recovered on the put. The result is fixed at (A − entry price) less the premium.

Break-even is the share entry price plus the premium. The floor is at A, and the premium is the distance the position must recover before it is level.

How it behaves before expiration

Today, before expiration

Today's value is a shallow curve above the expiration line on the downside and below it on the upside, with the corner at A rounded.

The corner at A is rounded. Before expiry the put is worth more than its intrinsic value, so the position sits above its terminal value on the downside — the floor is, in practice, a little better than it will be at expiry — and below it on the upside, because that extra value is still being paid for.

The gap between the two lines narrows every day. What the position gives up is not paid once at the start; it is paid continuously as the put decays.

The Greeks

Delta is positive and less than 100. A put bought at 30 delta leaves the position behaving like roughly 70 shares, and that number rises toward 100 as the price rises away from A.

Gamma is positive: the position’s delta falls as the price drops, so it participates less in a decline the further the decline goes. That is the floor taking effect gradually rather than all at once.

Theta is negative. The put decays, and nothing offsets it.

Vega is positive. A rise in implied volatility increases what the put is worth, which helps a position that owns one.

Where it lives in the volatility environment

Practitioners generally describe a protective put as insurance and price it the way insurance is priced: the same floor costs more when implied volatility is high, because the option that provides it is more expensive. The floor itself is set by the strike, not by the volatility environment.

What can go wrong

• The premium is a certain cost against an uncertain benefit. In a market that does not fall, the position underperforms the shares by exactly what the put cost, every expiry it is renewed.
• The floor is at A, not at the entry price. Everything between the entry and A is still lost before the put begins to help.
• Rolling has a running cost. A floor maintained across successive expiries is a repeated purchase, not a one-off.
• Exercising is not the only exit. Selling the put and keeping the shares usually realises more than exercising, because exercise abandons any remaining time value.
• A put on a different quantity does not cover. 100 shares need one contract; a partial hedge floors only the part it covers.

Building it in Option Panel

Open Build Strategy and pick Protective Put. The structure requires stock, so the shares must already be in the trade. The long put at A is offered by delta, by percentage or points from the price, by an offset from the share price, or as an exact strike.

Back to the encyclopaedia · What-if analysis in the docs

Related strategies

• Long Stock — the position this one starts from, with no floor under it.
• Collar — this floor paid for by writing a call above the price, which caps the upside this page keeps.
• Long Call — the same shape built from one option, with the floor at zero and no shares involved.