Bullish options strategy
Protective put
Own the shares and buy a put underneath them: insurance that sets a floor on your loss.
BullishLow IV (buying cheap premium)Defined riskLevel 3 · Buying options
Protective put payoff
An example on a $100 stock with 30% implied volatility. The dashed line is the profit or loss at expiry; the solid line is what the position is worth today.
The trade
Buy 100 shares at $100.00
Buy 1 $95 put · 60 days · $2.42
Net debit $10,242
Max profitUnlimited
Max loss−$742
Break-even$102.42
Chance of profit42%
How it works
- The put gains value as the stock falls below its strike, offsetting the loss on your shares.
- You keep all the upside, minus what the insurance cost.
When to use it
- You want to keep a stock through a risky event (earnings, macro news) but cap the damage.
Managing the trade
- Further out-of-the-money puts are cheaper insurance with a lower floor.
- Longer-dated puts cost less per day than rolling short ones.
Risks
- The premium is a cost that drags on returns if nothing happens.