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Understanding Options 2E, 2nd Edition by Michael Sincere

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17

Protective and Married Puts

The put strategies you learned about earlier were for speculators who want to make money on weak underlying stocks. The advantage of buying puts is that you can make a profit without having to sell short the stock.

There are other ways to use a put. One strategy is to buy a put on a stock that you already own. Why would you do that? For protection, which is why it’s called a protective put. The cost of the protective put is similar to the premium you pay on an insurance policy.

The main disadvantage to buying puts for protection is the relatively high cost. Like any insurance, protective puts eat into your profits, which is something you must consider. Also, the most volatile stocks cost the most to insure. Nevertheless, ...

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