Understand the position
Buy 100 shares at $100 and one $95 put for $2 per share. The combined outlay is $10,200. At expiration, the stock-plus-put value cannot fall below $9,500 under the simplified contract assumptions, so maximum loss is $700 before costs.
The strike floor is not the same as zero loss. The $5 difference between stock cost and strike plus the $2 premium creates the $7 per-share loss limit. A higher strike may reduce the uncovered decline while costing a different premium.
Read the payoff and try a scenario
Protective put: profit and loss at expiration
- Buy 100 shares at $100 and one $95 put for $2 per share.
- Expiration break-even stock price: $102 before costs.
- The plot displays $70–$130 only. Move the control to $0 to examine a stock collapse; the right edge is not an upside bound.
Read the chart data
| Stock price at expiration · USD | Whole position P/L (Net P/L · USD per share) |
|---|---|
| 70 | -7 |
| 80 | -7 |
| 90 | -7 |
| 95 | -7 |
| 100 | -2 |
| 102 | 0 |
| 110 | 8 |
| 120 | 18 |
| 130 | 28 |
One contract per option leg; 100 shares where the strategy includes stock. Read the fixed position above before changing the price.
At stock $70, shares lose $3,000 but the put has $2,500 intrinsic value; after its $200 cost, the combined loss is $700. At $110, the put expires worthless and the combined gain is $800. Break-even is $102.
Separate expiration economics from live prices
The diagram calculates net profit or loss at expiration with the specified position intact. Before that date, remaining time, implied volatility, rates, dividends and bid–ask spreads affect each leg’s market value. A break-even shown here is an expiration break-even, not the price at which an early closing trade must be profitable.
For an actual position, calculate net execution costs and contract quantities, and verify every leg’s expiration, underlying and deliverable. The examples use one standard 100-share contract per leg. Adjusted contracts can differ; an incomplete or mismatched hedge changes the risk.
Understand the tradeoffs and obligations
Protection ends with the put. Renewing it requires another premium at then-current terms, and selling it early removes the remaining hedge. A good stock outcome can coincide with the put losing its entire premium; evaluate the combination.
Exercise of the put can sell the shares. If the investor wants to keep them, that intention must be reconciled with expiration procedures. An option on a different security or a different quantity is a basis-risk hedge, not the exact floor shown in this diagram.
Why is the maximum loss $700 even though the put strike is only $5 below the stock purchase price?
Show the explanation
The stock-to-strike gap is $500 and the put costs another $200. Total maximum expiration loss is $700 before costs.
Sources and editorial notes
Original explanations and hypothetical examples prepared with AI assistance. Primary reference check dates are listed below. Numerical examples are hypothetical unless explicitly identified otherwise.
- OCC / OIC: Protective Put
Position construction and risk tradeoffs. All premiums, strikes, payoff graphics, practice questions and calculations are original fictional examples, not copied charts or performance results. Checked October 17, 2026.
- FINRA / OCC: Understanding Assignment
Exercise, assignment, after-hours risk and broker cutoff considerations. Strategy diagrams assume intact matching positions through settlement. Checked October 17, 2026.