Protective put
Principles of Finance glossary · Principles Of Finance
Definition
Long stock combined with long put; a portfolio insurance strategy.
Protective put in plain English
A protective put is basically buying insurance for a stock you own. You hold the stock (hoping it rises), but you also buy a "put" — a contract that lets you sell that stock at a set floor price no matter how far it crashes. So if the stock tanks, your put lets you bail out at the agreed price, capping your loss; if the stock soars, you just let the put expire and keep the gains. Like paying a small premium for car insurance: you hope you never need it, but if disaster strikes you're covered, and the cost of that peace of mind is the price you paid for the put.
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide