Protective Put
Hold the underlying and buy a put as insurance, capping downside while keeping unlimited upside.
What is a Protective Put?
A Protective Put (or 'married put') pairs a long position in the underlying with a long put. The put acts as an insurance policy: below the strike, losses on the underlying are offset by gains on the put. You keep full upside participation minus the cost of the premium. This is the textbook way to hold a position through uncertain events — results, elections, budget — without exiting.
Payoff Diagram
Profit & Loss at expiry
Per share (multiply by lot size 75). Gold dots mark breakeven points; green = profit, red = loss.
Construction
- Own the underlying (1 lot / 100 shares).
- Buy 1 OTM Put as protection.
- Pay the premium — the cost of your insurance.
When to Use It
Use when you are long-term bullish but fear a near-term shock, or to lock in unrealised gains. Buying puts when IV is low keeps insurance cheap. It is a defensive overlay, not a profit engine.
The Greeks
Positive Delta (net long, but less than 1), Positive Gamma, Positive Vega, Negative Theta (you pay for time).
Risks & Considerations
- The premium is a recurring drag on returns if bought repeatedly.
- If the underlying rises, the put expires worthless — insurance you 'wasted'.
- Choosing too-far-OTM a strike leaves a large uninsured gap.
Worked Example (Nifty)
Illustrative trade — lot size 75
Hold Nifty at 20,000, buy 19,600 PE for ₹150. If Nifty crashes to 19,000, the underlying loses 1,000 points but the put is worth 600, net loss ≈ (−1000 + 600 − 150) × 75 = −₹41,250, capped versus −₹75,000 unhedged. If Nifty rises to 21,000, you gain (1000 − 150) × 75 = ₹63,750.