① Construct the Portfolio
Tune the parameters below to build your protective put position.
Parameters
Portfolio Summary
② Payoff / Profit Chart
See how the hedged portfolio behaves across all possible stock prices at expiry.
③ Hedged vs. Unhedged Comparison
Understand the real cost of protection and what you give up in bull markets.
Scenario Analysis
Set a final stock price to compare outcomes:
Key Insights
Cost of Protection vs. Strike Price
Concept Explainer
A concise walkthrough of the protective put strategy.
What is a Protective Put?
A protective put is an options strategy where an investor holds a long position in a stock and simultaneously buys a put option on the same stock. The put grants the right to sell the stock at the strike price, creating an insurance floor.
Downside Protection
If the stock price falls below the strike price K, the put option gains intrinsic value and offsets losses. The maximum loss is capped regardless of how far the stock falls.
Break-even Price
Because you pay a premium P for the put, the stock must rise above your initial cost plus the premium to become profitable.
Upside Remains Unlimited
Unlike other hedging strategies, the protective put does not cap the upside. If the stock rallies, you benefit fully — you simply paid an insurance premium for the floor.
Comparison: Hedged vs. Unhedged
The unhedged investor has higher profit potential (no premium cost) but faces unlimited downside risk. The hedged investor trades a small cost for certainty of the floor. The choice depends on risk tolerance and market outlook.
Real-World Use Cases
Portfolio managers use protective puts before earnings announcements, macro events, or when they want to lock in gains but maintain upside exposure. It's the options equivalent of buying home insurance.