You own 100 shares at $80. You buy a $70 strike put for $3. The stock crashes to $50. What is your effective sell price?

You exercise the put at $70, but you paid $3 per share in premium, so your net proceeds are $70 - $3 = $67 per share. Without the put, you'd have received only $50.

What is a protective put?

Buying a put option on shares you own. It guarantees you can sell at the strike price, capping your maximum loss if the stock falls.

How is a protective put different from a stop-loss?

A stop-loss sells your shares at a trigger price but can execute worse in fast markets. A put option guarantees the strike price in all conditions — but costs a premium.

When is the best time to buy a protective put?

Before high-risk events (earnings, regulatory rulings) or when holding large concentrated positions you can't immediately sell.

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BeginnerOptions Strategy

Protective Put: Insurance for Your Stock Position

A protective put is like buying insurance for shares you own. You pay a small premium to guarantee a minimum sell price, limiting losses if the stock crashes.

TL;DR

A protective put is like buying insurance for shares you own. You pay a small premium to guarantee a minimum sell price, limiting losses if the stock crashes.

The Core Idea

You own 100 shares of a stock at $50. You buy a put option with a $45 strike. If the stock falls to $30, you can still sell at $45 — your maximum loss is capped. The put option cost is the "insurance premium" you pay for this protection.

Key Terms:

protective putput optionstrike pricedownside protection

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Protective Put: Insurance for Your Stock Position

The Core Idea

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