The mirror strategy to a covered call — instead of collecting income, an investor pays a premium to cap the maximum loss on a stock position.
How it works
Shares times premium per share gives the cost of protection. The gap between current price and strike price, plus the premium paid, divided by the current price, gives the maximum loss percentage.
What this does not include
This doesn’t include the ongoing cost of repeatedly buying puts if held for an extended period — put premiums recur each time a position is re-hedged, an ongoing cost beyond this single-period calculation.
How to use this calculator
- Enter shares owned, current price, strike price, and premium per share.
A worked example
100 shares at $50 current price, buying a $45 strike put at $3/share premium: total cost = 100 × 3 = $300, maximum possible loss = 16% of position value — capped by the strike price plus the premium paid.
What the variables mean
| Variable | Meaning |
|---|---|
| Shares | Number of shares held |
| Current price | Current share price |
| Strike price | The put option’s strike price |
| Premium per share | Cost of the put option, per share |
Edge cases worth knowing
A protective put caps downside loss but doesn’t eliminate it entirely. The maximum loss includes both the drop to the strike price and the premium paid for the insurance — the put limits, rather than removes, downside risk.
Zero shares makes the position meaningless, so the calculator declines to show a result for that input.
Frequently asked questions
Why is a protective put compared to insurance?
Like insurance, it requires paying a premium regardless of outcome, but caps the downside loss if the “bad event” (a sharp price decline) occurs — the position is protected below the strike price.
Does buying a put eliminate all risk?
No — it caps the maximum loss at a known percentage, but the investor still bears the loss down to the strike price, plus the premium paid regardless of what happens.
When might an investor use a protective put?
Ahead of a known risk event (earnings, a major announcement) or simply to limit downside on a concentrated position without selling the shares outright.
