How does a Protective Put limit downside?
At expiration, a purchased put can gain value as the underlying falls below its strike. That gain can offset stock losses below the strike, subject to the premium paid and the number of shares covered.
A Protective Put combines long shares with a purchased put option. The stock retains upside participation, while the put can establish a lower exit value at the selected strike before expiration.
Calculate This StrategyAt expiration, a purchased put can gain value as the underlying falls below its strike. That gain can offset stock losses below the strike, subject to the premium paid and the number of shares covered.
No. Unlike a Covered Call, a Protective Put does not sell away stock upside. The cost of that protection is the put premium.
Explore similar approaches and alternatives to find the best fit for your market outlook.
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Bearish
A Long Put buys one put option and gives the holder the right to sell shares at the selected strike before expiration. It is a defined-risk position that can benefit when the underlying price falls.
Moderately bearish
A Bear Put Spread buys one put at a higher strike and sells one put at a lower strike with the same expiration. This creates a defined-risk, defined-reward position with lower cost than buying a put alone.
More sophisticated multi-leg combinations
Educational use only. Options involve risk and this calculator does not provide investment advice or guarantee an outcome.