Protective Put

A protective put is a fundamental portfolio insurance strategy that combines stock ownership with put option protection, creating a position that maintains unlimited upside potential while establishing a defined maximum loss level. This essential risk management technique involves owning the underlying stock and purchasing an out-of-the-money put option as insurance against significant price declines, making it ideal for long-term investors who want to maintain equity exposure while protecting against market downturns. The strategy is particularly effective during periods of market uncertainty, earnings seasons, or when holding concentrated positions that require downside protection without sacrificing upside participation. Professional portfolio managers use protective puts as a cornerstone of risk management, allowing them to maintain bullish positions while adhering to strict risk parameters and drawdown limits. The put option acts as an insurance policy, providing peace of mind and enabling investors to hold positions through volatile periods without emotional decision-making. The strategy offers flexibility in strike selection to customize the protection level according to individual risk tolerance and market outlook

If NIFTY is at ₹25,800, set up: Long NIFTY position at ₹25,800, Buy ₹25,500 Put for ₹45, creating total investment of ₹25,845 with protection against losses below ₹25,500, limiting maximum loss to ₹345 while maintaining unlimited upside potential above ₹25,845.