InvestorQ : Can I use a protective put option in a bullish scenario or a bearish scenario?
Maniish Lofar made post

Can I use a protective put option in a bullish scenario or a bearish scenario?

Answer
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Nisha Chandani answered.
2 years ago


A protective put strategy is a very simple strategy created by combining a future and a put option or a cash market position and an option. The put option strike price is normally below the purchase price in the cash market. In a protective put also you are bullish on the stock but you just want to protect your downside risk in the event of any volatility risk. The put option is purchased at a lower strike than your futures purchase price. Your loss on the downside will be the gap between your future price and the put option strike plus the premium irrespective of how low the stock price goes. On the upside, the profit on futures is unlimited after your cost of put options is covered. Such combination strategies are called hybrids in F&O.