Also known as a 'married put', this strategy provides insurance for your stock position by buying a put option. The put gives you the right to sell your shares at the strike price, creating a price floor. You pay a premium for this protection.
Unlimited upside minus put premium paid
Limited to: Stock Price - Strike Price + Premium Paid
Stock purchase price + Premium paid
Long 100 shares + Long 1 Put
Unlimited profit potential, limited risk below strike price. Cost is the put premium.
When you own stock and want to protect against downside risk. When you're bullish long-term but concerned about near-term volatility. Think of it as paying an insurance premium.