How would you like a little insurance in case one of your stocks takes a turn for the worse? If that sounds appealing, consider a protective put.
At its core, a protective put is exactly what it sounds like—protection. It allows you to hang on to the potential gains from a stock you own, while setting a floor beneath your losses.
Now, there is a cost involved. Buying a protective put isn’t free. As with any insurance policy, this strategy comes with a premium. However, paying a bit to avoid the financial equivalent of a bad fall isn’t exactly reckless.
If you’ve ever paid for car insurance and then not crashed your car, you get the idea. It’s peace of mind, not a magic wand. In this article, I’ll walk you through how a protective put works, what it costs, and when it might make sense.
This post originally appeared at Investing Daily.