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What is a protective put?
Learn how a long put can set a defined stock-price floor through expiration while retaining stock upside
Prepared by Mark · Primary sources below
Direct answer
A protective put combines owned shares with a purchased put. The put gives its holder the right to sell the shares at the strike price through expiration, creating a defined floor for the stock position before the put's cost. The shares can still rise, but the option premium is paid upfront and its time value can decline as expiration approaches
The put supplies a right to sell
The shares remain exposed to price changes, while the purchased put gives the holder a right to sell at its strike price. At expiration, a lower stock price can increase the put's value and offset part of the decline in the shares
Protection has a cost and an end date
The premium paid for the put reduces the position's result whether or not the stock falls. The protection applies only through the option's expiration, so the remaining time and chosen strike are essential parts of the position rather than implementation details
The stock's upside remains open
Unlike a covered call, a protective put does not set an upper cap on the shares' value. But a rising stock does not guarantee the put premium is recovered; the combined outcome depends on the stock move, the option price paid, and the time remaining
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