GLOSSARY · INVESTING
Protective put
Buying a put option on shares you already own, which gives the right to sell them at a set strike price until expiration. It puts a floor under the holding at roughly the strike minus the premium paid, while keeping the upside. Like insurance, it has a cost that recurs each time it is renewed.
Also called: married put, portfolio insurance put
FORMULA
Worst-case value per share ≈ strike price − premium paid
COMPUTE IT WITH YOUR NUMBERS
LEARN IT PROPERLY
CHAPTER · ADVANCED INVESTMENT STRATEGIES · DEEP DIVEOptions as Protection: Puts, Covered Calls and CollarsRELATED TERMS
SOURCES
- Characteristics and Risks of Standardized Options. The Options Clearing Corporation.
- The Pricing of Options and Corporate Liabilities. Black & Scholes, Journal of Political Economy, 1973.