Protective put

Also called: Married put

A protective put is downside insurance. You own the stock and buy a put, which gives you the right to sell at the strike price no matter how far the stock falls. The cost is the premium you pay.

How does a protective put work?

If the stock drops below the put strike, the put gains value and offsets the loss on the shares — your effective floor is the strike minus the premium paid. If the stock rises, the put expires worthless and you keep the upside, having spent the premium on protection you did not need, the same as any insurance.

How is it different from a collar?

A protective put alone costs premium out of pocket. A collar adds a short call whose premium pays for the put, trading away some upside instead of cash. The protective put keeps full upside but is not free.

This definition is for educational and informational purposes only and is not investment, tax, or legal advice. Option strategies involve risk and are not suitable for all investors. Tax treatment of options is complex and depends on individual circumstances, holding periods, and applicable law. Consult a qualified tax professional and investment advisor before acting. Yayati Asset Management is a Registered Investment Adviser.