Protective Put

A protective put (also called a married put) involves purchasing a put option on a stock that is already owned. The put acts as insurance — if the stock drops below the put's strike price, the put gains value, offsetting the stock's losses. The maximum loss is limited to the difference between the stock's purchase price and the put's strike price, plus the premium paid. Unlike a stop-loss order, a protective put cannot be triggered by a brief intraday dip and guarantees an exit price even in gap-down scenarios. The cost is the put premium, which is the "insurance premium" for downside protection. The strategy maintains full upside participation above the cost of the put. Protective puts are commonly used before uncertain events, during periods of elevated risk, or to lock in gains on appreciated positions without selling.