When Should You Use This Strategy?
You own stock and fear a near-term dip
Who Benefits Most?
Existing shareholders seeking downside protection
Position Setup
The Protective Put consists of the following legs:
- Buy 100shares
- Buy 195 strike put at $3 premium
How Profit and Loss Work
Maximum Profit: Unlimited: (Stock price − Stock entry) − Put premium
Maximum Loss: Limited: (Stock entry − Put strike) + Put premium
Break-even Points: Stock entry + Put premium
Timing & Time Horizon
30–60 days
Most traders enter this strategy 30–60 days before their expected move, allowing enough time for the position to develop while avoiding excessive time decay on shorter-dated options.
Capital Requirements
100+ shares plus put cost
How to Manage the Position
Let put expire worthless if stock rallies above strike
- Monitor the position daily, especially as it approaches profitability
- Set clear profit targets and exit rules before entering
- Consider closing early to lock in gains rather than waiting for max profit
- Be prepared to cut losses if the thesis is wrong
Key Risks & What to Watch
- Put premium is lost if stock never drops
- Opportunity cost
Model Before You Trade
Every strategy performs differently based on entry price, strike selection, and premium levels. Use the interactive Protective Put calculator to model the payoff with your expected entry, strikes, and premiums before committing capital.
Educational information only. This guide explains how the strategy works mathematically and typically behaves. It is not investment advice, and past performance does not guarantee future results. Options trading involves significant risk, including the potential loss of premium paid. Paper trade or use small positions while learning.