Protective Put

TL;DR: A protective put is downside insurance — you own the stock and buy a put so a crash can only hurt you down to the strike.

A protective put involves holding shares of a stock and buying a put option against them. The put gives you the right to sell your shares at the strike price no matter how far the stock falls, so your maximum loss below the strike is locked in. You pay a premium for this protection, exactly like an insurance premium: if the stock keeps rising you simply lose the cost of the put, but if it collapses the put gains value and offsets the loss on your shares.

The trade-off is cost versus protection. A put struck close to the current price (at-the-money) protects almost the entire position but costs more; a put struck well below the current price (out-of-the-money) is cheaper but absorbs a larger first loss before the protection kicks in. Either way, your breakeven moves up by the premium paid, and your downside below the strike is capped at the strike price minus the premium. This is the same payoff as a long call on the same strike, which is why a protective put is sometimes called a "synthetic call."

Traders reach for protective puts around catalysts — earnings, FDA decisions, macro prints — when they want to keep their upside but cannot stomach the gap-down risk. When the put and the shares are bought at the same moment it's usually called a married put; when the put is added later to a position already sitting on gains it's a protective put used to lock in profit. Options Pilot's scoring helps time the hedge: elevated implied volatility (Value pillar) makes puts expensive, so the cheapest insurance is usually bought before IV spikes, not after. For the full mechanics, payoff diagram, and candidate-screening workflow, see the protective put strategy guide.