Options Directional / Hedging
Protective Put (Married Put)
Own the stock, buy a put underneath it, and a crash stops being unlimited. The put costs money whether or not the crash ever shows up, exactly like any other insurance policy.
Stress test the position
Set how far out of the money the put strike sits, pick a scenario, and run it. Watch the protected line (green) and the unprotected line (steel) diverge, and see whether the insurance was worth what it cost this time.
How it works
- It's stock ownership plus one long put underneath it. Every share still participates fully in any rally, uncapped, exactly like owning the stock alone. The put only ever matters on the downside.
- The floor sits at the strike, minus the premium paid. No matter how far the stock falls below the strike, the combined position can't be worth less than that floor. That's the entire point, converting an open-ended downside into a defined one.
- A closer strike costs more and protects more. Drag the strike slider up toward $100 and the premium climbs, because the put is closer to the money and more likely to be worth something. Drag it down and the premium drops, but so does the floor, meaning more of the crash has to happen before the insurance kicks in.
- The premium is gone whether or not the crash happens. Run the rally or flat scenario a few times. The protected line finishes lower than the unprotected one every single time, by roughly the premium paid, because insurance that never gets used still cost money.
Where this breaks
Paying for protection you don't end up needing, over and over
A protective put has to be repurchased every time the old one expires if the position is held for years, and most years don't have a crash in them. Run the rally scenario repeatedly and watch the small, steady gap between the two lines. That gap is the real cost of this strategy held over a long stretch of calm markets, not a one-time fee but a recurring drag that only pays for itself in the years it's actually needed.