Options & derivatives
Protective put
Buying a put on shares you own, as insurance against a fall.
How it works
It sets a floor under the position for the life of the option. The cost is the premium, which is a certain expense against an uncertain benefit.
It is one of the few genuinely defensive option strategies available to an ordinary investor.
Where it misleads people
Rolling protective puts continuously is expensive enough to consume a large share of long-run returns. It is best used for specific, time-limited risks rather than permanently.
Related terms
- Put optionThe right to sell an asset at a fixed price before a set date.
- HedgingTaking an offsetting position to reduce a specific risk you do not want.
- Tail-risk hedgingDeliberately paying a small ongoing cost to limit losses in a severe market fall.
- PremiumThe price paid for an option, made up of intrinsic value plus time value.
More in Options & derivatives
All 30 Options & derivatives terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.