How to Set Up a Protective Put (Hedging 101)
Cap your downside risk with protective puts—portfolio insurance for uncertain times.
What is a Protective Put?
A protective put is portfolio insurance—you own shares and buy a put as protection to limit losses below a strike price.
When to Use:
- • Before earnings announcements
- • During high market uncertainty
- • To protect unrealized gains
- • As event-driven insurance
FAQ
Is a collar cheaper than a protective put?
Yes—selling a covered call offsets put cost but caps upside. Choose based on your market outlook.
When should I remove the hedge?
After the catalyst passes, volatility normalizes, or when hedge cost exceeds benefit.