A protective put position is created by buying (or owning) stock and buying put options on a share for share basisIn the example, shares are purchased (or owned) and one put is purchasedIf the stock price declines, the purchased put provides protection below the strike priceThe protection, however, lasts only until the expiration date
Buying protective putsWatch a short video on buying protective puts and see how this strategy might affect your portfolioIntermediateInvesting strategiesOptionsInvesting strategiesOptions strategiesTrading and investingOptions.
Buying a Protective Put solves this dilemmaIt protects your unrealized profits so that you don't have to sell any shares of the stockRemember that a Put option gives its owner the right, but not the obligation, to sell a certain stock at a specified price on or before a specified date.
The protective put is a powerful hedging options strategy that may help you feel a little more comfortable with market volatility knowing your stock is protectedHowever, do keep in mind that the security does come at a cost since you pay a premium to own the put.
Buying ONLY Put's should not be confused with Married Puts or Protective PutsMarried and Protective Puts are purchased to protect shares of stock from a sharp decline in priceThe major difference between the two is with Married Protective Puts there is "ownership in stock"Buying Put options involves just that, buying only the Put option.