Protective Put Options

Protective Put Options

COURSE

Protective Put Options

Learn how to protect your portfolio against losses using long put options rather than stop losses.

As much as we wish it weren’t true, there is no such thing as a risk-free investment in the stock market. Sure, some stocks are typically less volatile than others, but none of them is risk-free. So what are you to do as an individual investor to reduce your risk? One way you can reduce your risk is to buy protective puts. In this course, we’ll show you how you can use these options contracts to decrease your downside risk.

In this course, you will learn:

  • How protective puts offset losses in a long underlying stock or ETF position
  • Which strike price and expiration date works best for your protective put strategy
  • The costs (and opportunity costs) of a protective put trade

Once you have completed this course you will:

  • Know how to select the right put option for the protection you need
  • Understand how to execute a long protective put trade in your account

More Information

Difficulty Level:Intermediate
Modules:4
Lessons:16

Course Syllabus
Protective Put Options

Module 1An Introduction to Protective Puts
Think of a protective put as an insurance policy. When you buy auto insurance, for instance, you pay a premium in return for protection, just in case you get in an accident or your car gets damaged. Similarly, when you buy a protective put, you pay a premium in return for protection, just in case your stock loses value.
Lesson 1Reading: An Introduction to Protective Puts 
Lesson 2Video: Introduction To Protective Puts (4:52) 
Lesson 3Quiz: Protective Puts 
Lesson 4Assignment: Choose and Analyze a Protective Put Option 
Module 2Choose a Strike Price for a Protective Put
The first thing you need to do when buying a protective put is determine which strike price you would like to buy. Making this determination will affect how much downside risk you will be exposed to in the trade and how much you will have to pay for the protective put.
Lesson 1Reading: Choosing a Strike Price for a Protective Put 
Lesson 2Video: Protective Put Strike Prices (6:08) 
Lesson 3Quiz: Choosing a Strike Price 
Lesson 4Assignment: Choose and Analyze a Strike Price for a Protective Put 
Module 3Choose an Expiration Date for a Protective Put
Once you have determined which strike price you would like to buy when creating your protective put, you next need to decide which expiration date to buy. Making this determination will affect how much you have to pay to protect your long stock position and how long that protection is going to last.
Lesson 1Reading: Choose an Expiration Date 
Lesson 2Video: Protective Put Expiration Dates (6:11) 
Lesson 3Quiz: Choosing an Expiration Date 
Lesson 4Assignment: Choose and Analyze a Protective Put Expiration Date 
Module 4Execute a Protective Put Trade
Now that you have a good understanding of the basics of how protective puts work and how to select an effective strike price and expiration date for a protective put, it is time to learn how to execute the trade.
Lesson 1Reading: Executing a Protective Put Trade 
Lesson 2Video: Entering a Protective Put (3:41) 
Lesson 3Quiz: Executing Protective Put Trades 
Lesson 4Assignment: Paper Trade a Protective Put