Protective Put for Equity Options
Chapters in this video
- 0:00 Bulletproofing a stock position from a crash
- 1:25 Married put versus protective put: timing is the only difference
- 2:15 Carla's trade: buy stock at 50, buy the 45 put for 2
- 2:55 Maximum loss of 7 dollars even if the stock goes to zero
- 3:40 Break-even at 52 and the "subtract the premium" trap
- 4:29 Protective put versus covered call: full hedge versus partial hedge
- 6:09 Rapid-fire exam recap
What this video covers
- Why a protective put is a full hedge on long stock, and how it works like an insurance policy with a defined maximum loss
- The married put versus protective put distinction (same strategy, different timing) and why the exam uses the terms interchangeably to trip you up
- How to calculate maximum loss as (stock purchase price minus strike price) plus the premium paid
- Why break-even sits ABOVE the stock purchase price at stock cost plus premium, and why subtracting the premium is a classic distractor answer
- Why maximum gain stays unlimited even after buying the put, reduced only by the premium paid
- The protective put versus covered call comparison: net debit versus net credit, full hedge versus partial hedge, unlimited upside versus capped upside
- Why "best protection for a stockholder" on the exam is always buying a put, never selling a call
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