What is a protective put?
Updated 6 June 2026 · by Theo Chen
A protective put is insurance on stock you own: you buy a put — usually struck below the current price — that lets you sell your 100 shares at that strike however far the stock falls. You keep every cent of the upside and pay a premium for the floor under your losses. It is the simplest hedge in options.
Want to see your floor, breakeven and the cost of the protection? Enter your share price, the put strike and the premium and the calculator returns the protected range and the maximum loss.
Open the Protective Put Calculator →How does a protective put work?
A protective put has just two pieces:
- 100 shares you own (per put contract).
- One long put, with a strike at or below the current price. This is the insurance — the right, not the obligation, to sell your shares at the strike before the option expires.
If the stock rises, the put expires worthless and you keep the gain minus the premium — exactly as if you had simply held the shares, just a little behind. If the stock falls below the strike, the put gains a dollar for every dollar the stock loses, so your position stops dropping. The put is the floor.
The floor: your guaranteed exit
The put strike is the price at which you can always sell, no matter what. That makes your maximum loss known the moment you put the trade on:
- Floor = the put strike — your guaranteed exit price.
- Max loss = (stock price + premium − put strike) × 100 per contract. This is the drop from today's price down to the floor, plus the insurance you paid.
- Breakeven = stock price + premium. The stock has to rise by the cost of the put before you are ahead.
The cost is the insurance premium
Protection is not free. The put premium is a continuous drag: buy puts every few months and you are paying that cost again and again, win or lose. Measured as a percentage of the share price, the premium is the "insurance rate" — and like all insurance, the more cover you want (a strike close to the price, a long expiration) the more it costs. That trade-off is the entire decision: pay more for a tighter floor, or less for a looser one further below the price.
A worked example
You own 100 shares trading at $100 and buy the $95 put for $2.00. Your floor is $95: if the stock crashes to $70, the put still lets you sell at $95, so your worst case is losing $5 of stock plus the $2 premium — $7 per share, or $700, and not a cent more. Your breakeven is $102: the stock must rise past that for the position to profit. If it rallies to $130, you keep $30 of gain minus the $2 premium. The $2 was the price of sleeping through the crash.
Own 100 shares at $100 and buy the $95 put (green) as insurance. Your loss is floored at $700 below $95; breakeven $102, and the upside stays open.
When a protective put makes sense
Reach for a protective put when you want to stay long a stock through a known risk — an earnings report, a binary event, a nervous market — without selling and triggering taxes or missing a rebound. It keeps all of your upside, which is its advantage over selling. The catch is the recurring premium. If that drag bothers you, a collar sells a covered call to pay for the put — cheaper or even free protection, but your upside is capped too.
The bottom line
A protective put floors your losses at the strike while keeping the full upside, unlike a collar - but you pay a premium each time you renew it, so that recurring insurance drag is the price of leaving the upside open.
Frequently asked questions
What is a protective put?
A protective put is a hedge on stock you already own: you buy a put option, usually with a strike below the current price, that gives you the right to sell your 100 shares at that strike no matter how far the stock falls. It works exactly like insurance — you pay a premium up front, and in return your downside is capped at the put strike while your upside stays completely open.
How much does a protective put cost?
The cost is the put premium you pay, quoted per share (so a $2.00 put costs $200 for one contract on 100 shares). As a rule of thumb it runs a few percent of the share price for a few months of cover; the closer the strike is to the current price and the longer the expiration, the more it costs. The calculator shows the premium as a percentage of price so you can judge the drag.
When should you use a protective put?
Use one when you want to hold a stock through a period of real risk — earnings, a binary event, a shaky market — without selling and triggering taxes or giving up the upside. It is also common right after a large gain you want to lock in. If the constant premium drag bothers you, a collar sells a covered call to pay for the put, at the cost of capping your upside too.
What is the maximum loss on a protective put?
Your loss is capped. The most you can lose is the distance from your purchase price down to the put strike, plus the premium you paid: (stock price + premium − put strike) × 100 per contract. Below the strike the put gains a dollar for every dollar the stock loses, so the position cannot lose any more — that floor is the whole point.
What is the difference between a protective put and a stop-loss order?
A stop-loss is an instruction to sell if the stock trades down to a price; a protective put is a contract that guarantees you can sell at the strike. The crucial difference is gaps: a stop-loss can fill far below your trigger if the stock gaps down overnight, while a put pays out at the strike regardless. The put costs a premium; the stop-loss is free but offers no guarantee.
Related questions
- What is a collar if I want the put paid for?
- How does a covered call generate income instead?
- What is a long put, the hedge on its own?
Related tools and guides
Price the floor and max loss in the Protective Put Calculator, or fund the put by selling a call with the Collar Calculator. Generating income on shares instead? See the Covered Call Calculator, and map any hedge in the Payoff Diagram Builder.
Educational explainer only — not financial advice. Examples are illustrative and exclude commissions, early assignment and dividends. Confirm the mechanics and size positions to your own risk tolerance.