Protective Put
Buying a put against shares already owned, to place a floor under the holding's value.
Formula
Maximum Loss = (Purchase Price - Strike + Premium) x Lot Size; Break-even = Purchase Price + Premium
Unit
₹
In depth
A protective put is insurance and should be judged as insurance: it costs a premium, it usually expires worthless, and it exists to bound a bad outcome rather than to make money. The cost is continuous, so hedging permanently is expensive enough to consume much of a portfolio's return over time. Premiums rise sharply exactly when protection becomes desirable, which means buying puts after a fall has begun is buying at the worst price. It differs from a stop-loss in that the floor holds through a gap, which is precisely the scenario a stop cannot handle.
Worked example
Own 1,000 shares at ₹500 and buy a 480 put for ₹10, costing ₹10,000. The worst outcome is a value of 480 - 10 = ₹470 per share, a 6% loss, whatever happens — including an overnight gap to ₹300.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Protective Put” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.