Glossary term
Protective Put
A long put bought against a held stock position; portfolio insurance with a known, fixed cost.
A Protective Put is a long put bought on a stock already owned, where it works as portfolio insurance with a known, fixed cost. It caps the position's downside below the put's strike while leaving the upside fully intact, in exchange for the premium paid up front.
It matters as a way to hold a position through a known risk, such as an earnings date or a macro event, without selling and forfeiting the upside. The trade-off is real: if the stock does not fall, the premium is a guaranteed drag on the return, much like an insurance policy that expires unused. Whether that cost is worth paying depends on conviction and on how expensive volatility is at the time.
Closelooknet frames the protective put as one option among several for managing downside, alongside simply trimming the position or writing a covered call, rather than as a default. It reads as a defined-risk choice with a visible cost, which suits the diary's preference for knowing the worst case in advance.
In practice, holding 100 shares bought at $100 and buying a $90 put for $3 caps the loss at $13 per share, the $10 down to the strike plus the $3 premium, however far the stock falls below $90.