The protective put, or put hedge, is a hedging strategy where the holder of a security buys a put to guard against a drop in the stock price of that security.

Put Option Definition, Put Options Examples, What are Puts?

A protective put strategy is usually employed when the options trader is still bullish on a stock he already owns but wary of uncertainties in the near term. It is used as a means to protect unrealized gains on shares from a previous purchase.

There is no limit to the maximum profit attainable using this strategy. Maximum loss for this strategy is limited and is equal to the premium paid for buying the put option.

Put Option Explained | Online Option Trading Guide

The underlier price at which break-even is achieved for the protective put position can be calculated using the following formula. Let's see how this works out.

There is no limit to the profits attainable should the stock price goes up. While we have covered the use of this strategy with reference to stock options, the protective put is equally applicable using ETF options, index options as well as options on futures. However, for active traders, commissions can eat up a sizable portion of their profits in the long run.

If you trade options actively, it is wise to look for a low commissions broker. Traders who trade large number of contracts in each trade should check out OptionsHouse. The following strategies are similar to the protective put in that they are also bullish strategies that have unlimited profit potential and limited risk.

Your new trading account comes with a virtual trading platform which you can use to test out your trading strategies without risking hard-earned money. Buying straddles is a great way to play earnings. Many a times, stock price gap up or down following the quarterly earnings report but often, the direction of the movement can be unpredictable. For instance, a sell off can occur even though the earnings report is good if investors had expected great results If you are very bullish on a particular stock for the long term and is looking to purchase the stock but feels that it is slightly overvalued at the moment, stock market week graph you may want to consider writing put options on the stock as a means to acquire it at a discount Also known as digital options, binary options belong to a special class of exotic options in which the option trader speculate purely on the direction of the underlying within a relatively short period of time Cash dividends issued by stocks have big impact on their option prices.

This is because the good stock for put option explained stock price is expected to drop by the dividend amount on the ex-dividend date As an alternative to writing covered calls, one can enter a bull call spread for a similar profit potential but with significantly less capital requirement.

Protective Put Explained | Online Option Trading Guide

In place of holding the underlying stock in egyptian stocks on nyse covered call strategy, the alternative Some stocks pay generous dividends every quarter. You qualify for the dividend if you are holding on the shares before the ex-dividend date To achieve higher returns in the stock market, besides doing more homework on the companies you wish to buy, it is often necessary to take on higher risk.

A good stock for put option explained common way to do that is to buy stocks on margin Day trading options can be a successful, profitable strategy but there are a couple of things you need to know before you use start using options for day trading Learn about the put call ratio, the way it is derived and how it can be used as a contrarian indicator Put-call parity is an important principle in options pricing first identified by Hans Stoll in his paper, The Relation Between Put and Call Prices, in It states that the premium of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa In options trading, you may notice the use of certain greek alphabets like delta or gamma when describing risks associated with various positions.

They are known as "the greeks" Since the value of stock options depends on the price of the underlying stock, it is useful to calculate the fair value of the stock by using a technique known as discounted cash flow Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account.

You should not risk more than you afford to lose.

Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service. Toggle navigation The Options Guide. Home current Binary Options new! Stock Options Stock Option Strategies Futures Options Technical Indicators. Trade options FREE For 60 Days when you Open a New OptionsHouse Account.

Ready to Start Trading? Overview Bull Calendar Spread Bull Call Spread Bull Put Spread Call Backspread Collar Strategy Costless Collar Covered Call OTM Covered Call ITM Covered Straddle Diagonal Bull Call Spread Long Call Married Put Protective Put Uncovered Put Write Covered Combination Stock Repair Strategy.

Buying Options Selling Options Options Spreads Options Combinations Bullish Strategies Bearish Strategies Neutral Strategies Synthetic Positions Options Arbitrage Strategy Finder Strategy Articles.

Arbitrage Bearish Bullish Neutral - Bearish on Volatility Neutral - Bullish on Volatility Profit Potential: Limited Unlimited Loss Potential: Home About Us Terms of Use Disclaimer Privacy Policy Sitemap Copyright The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.