65-Day Academy · Day 49 · Options: Foundations
The Put — Insurance and Directional Bear
The contract
A put gives the buyer the right to SELL 100 shares at the strike before expiration. Buy a $100-strike put for $3 on stock you own: if the stock craters to $70, you can still sell at $100 — the put is portfolio INSURANCE with a known cost ($300 per contract per period). Insurance you hope expires worthless.
Two distinct uses
1) Protective put: own stock + buy puts = a floor under your position (the "married put") — real insurance, real ongoing cost. 2) Naked long put: a directional bear bet with defined risk (premium) and large percentage upside if the stock falls hard. Same instrument, opposite portfolios — always know which job an option is doing.
The seller's side
The put SELLER collects the premium and OBLIGATES themselves to buy at the strike — even if the stock is $30 below it. Selling "naked" (uncovered) puts has undefined downside (stock can go to zero) and is how option selling accounts blow up. The cash-SECURED version (day 54) caps that by holding the cash to actually buy.
What you'll practise
True or false: buying a protective put on stock you own guarantees you cannot lose money on the position.
10 XP in the app · introductory
Sources
- Protective PutCBOE education
- Put OptionInvestopedia
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All lessons are for educational purposes only and are not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk and are not suitable for every investor.