# Protective Put

> A protective put buys a put on shares you own to limit downside. Learn the payoff, what protection costs, how to choose strikes and when hedging makes sense.

Source: https://learn.tradelabsai.com/options/protective-put/  
Track: Options · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Protective Put", https://learn.tradelabsai.com/options/protective-put/

A protective put combines owning shares with buying a put option on them. The put works like an insurance policy: if the stock falls below the strike, the put gains value and offsets the loss. If the stock rises, you keep the upside, minus the cost of the put. It is sometimes called a married put when the shares and put are bought together. Protective puts suit investors who want to stay invested but limit how much they can lose over a period.

## How it works

1. **Own 100 shares** per contract.
2. **Buy one put** at a strike that sets your floor.
3. **Pay the premium,** the cost of insurance.
4. **At expiry:** if the stock is below the strike, the put pays the difference (or you can sell your shares at the strike). If above, the put expires and you keep the shares.

## Payoff at a glance

| Feature | Protective put |
|---|---|
| Outlook | Bullish but worried about downside |
| Maximum loss | (Stock cost minus strike) + premium |
| Maximum gain | No cap, minus the premium |
| Break even | Stock cost + premium |

*Figure: A protective put has the same shape as a long call, as put call parity predicts.*

## Worked example

**Example: Protecting gains before a risky period**
You own 100 shares bought at $60, now trading at $100. You buy a 90 day $95 put for $3.00 ($300).

- **Stock falls to $70:** the put is worth $25. Your shares lost $3,000 from $100, the put gained $2,200 net ($2,500 minus $300). Effective floor: $95 minus $3 = $92.
- **Stock stays at $100:** the put expires. Cost: $300, 3% of the position over three months.
- **Stock rises to $120:** shares gain $2,000, minus $300 for the put: $1,700.

Your worst case value over the three months is $92 per share, locking in most of the gain from $60.

## The cost of protection

Insurance is not free. Buying a 5% out of the money put every quarter might cost 1.5% to 3% each time, or 6% to 12% a year, depending on volatility. Over years, that can consume most of a stock's expected return. Protective puts are best used selectively:

- **Around specific risks:** earnings, elections, big concentrated positions.
- **When implied volatility is low,** making puts cheaper. See [Implied Volatility (IV)](https://learn.tradelabsai.com/volatility/implied-volatility/).
- **For gains you must protect,** such as money needed soon.

Index puts are typically pricier than single stock volatility might suggest because of demand for crash protection, a pattern known as skew. See [Volatility Smile and Skew](https://learn.tradelabsai.com/volatility/volatility-smile-and-skew/).

## Choosing a strike

| Strike | Cost | Protection starts |
|---|---|---|
| At the money | Highest | Immediately |
| 5% out of the money | Moderate | After a 5% drop |
| 10% to 20% out of the money | Low | Only in a crash |

Like an insurance deductible: the further out of the money, the cheaper the cover and the larger the loss you absorb first.

## Reducing the cost

- **Collars:** sell a call to pay for the put, giving up upside. See [Collars](https://learn.tradelabsai.com/options/collars/).
- **Put spreads:** buy a put and sell a lower put, protecting a range of decline. See [Bear Put Spread](https://learn.tradelabsai.com/options/bear-put-spread/).
- **Longer expirations:** cost less per month, though more in total.
- **Hedge with index puts** for a diversified portfolio rather than many single stock puts. See [Hedging](https://learn.tradelabsai.com/markets/hedging/).

## Common mistakes

- **Buying protection after a crash,** when puts are most expensive.
- **Insuring continuously** without counting the long term cost.
- **Choosing strikes too far out** to protect against realistic declines.
- **Letting puts expire** without a plan to renew or remove protection.

## Frequently asked questions

### What is a protective put?

Owning shares and buying a put option on them, so that losses below the strike are offset by the put.

### How much does a protective put cost?

It depends on the strike, time to expiry and implied volatility. Out of the money puts for a few months might cost a few percent of the stock price.

### Is a protective put the same as a stop loss?

No. A stop loss can fill well below its level in a gap and sells your shares; a put guarantees the strike price for the option's life and lets you keep the shares.

Next, learn to fund protection by selling upside in [Collars](https://learn.tradelabsai.com/options/collars/).

## Continue learning

- Next lesson: [Collars](https://learn.tradelabsai.com/options/collars/)
- Previous lesson: [Cash-Secured Put](https://learn.tradelabsai.com/options/cash-secured-put/)
- Related: [Cash-Secured Put](https://learn.tradelabsai.com/options/cash-secured-put/): A cash secured put sells a put while holding cash to buy the shares if assigned. Learn the payoff, the wheel strategy, strike choice and the risks involved.
- Related: [Long Put](https://learn.tradelabsai.com/options/long-put/): A long put is buying a put option to profit from a decline or to hedge. Learn the payoff, break even, long put vs short selling and how to choose strikes.
- Related: [Collars](https://learn.tradelabsai.com/options/collars/): A collar holds shares, buys a protective put and sells a call to fund it. Learn the payoff, zero cost collars, strike choices and who uses this hedge.
- Related: [Hedging](https://learn.tradelabsai.com/markets/hedging/): Hedging means taking a position that offsets the risk of another. Learn how hedges work with options, futures and correlated assets, their costs and limits.
- Related: [Volatility Smile and Skew](https://learn.tradelabsai.com/volatility/volatility-smile-and-skew/): Implied volatility differs by strike, forming a smile or skew. Learn the shapes in equities, FX and commodities, why they exist and how to measure skew.
- Related: [Portfolio Construction](https://learn.tradelabsai.com/portfolio/portfolio-construction/): Portfolio construction turns investment ideas or trading strategies into a set of positions with sensible sizes. Learn the steps, common methods and constraints.