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Buying a put option on stock you own to protect against downside.
Why It Matters
Protective puts are insurance for your portfolio. If you own $50,000 in stocks and buy puts, you've locked in a floor price - no matter how far the market crashes. This is how hedge funds protected their portfolios during 2008 and 2020 crashes while others got wiped out.
Key Points
- Your maximum loss = stock purchase price - put strike + premium paid
- Cost of protection (premium) reduces your overall returns in up markets
- Often used before earnings, elections, or other uncertain events
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Common Questions
Buying a put option on stock you own to protect against downside. Protective puts are insurance for your portfolio. If you own $50,000 in stocks and buy puts, you've locked in a floor price - no matter how far the market crashes.
Protective puts are insurance for your portfolio. If you own $50,000 in stocks and buy puts, you've locked in a floor price - no matter how far the market crashes. This is how hedge funds protected their portfolios during 2008 and 2020 crashes while others got wiped out.
Your maximum loss = stock purchase price - put strike + premium paid
Cost of protection (premium) reduces your overall returns in up markets
Often used before earnings, elections, or other uncertain events