Protective put

A protective put is a long put held against a long position in the underlying, setting a floor on the loss at the put strike minus the premium paid. It works like insurance: the premium is the cost, the strike the deductible, and demand for such protection is a main reason index puts trade at higher implied volatility than calls.

Senzoukria · Glossary · Updated September 2026

At a glance

Construction
Long underlying + long put
Maximum loss
Entry price − put strike + premium
Upside
Unlimited, minus the premium

Worked example

An investor holds shares bought at 100 and buys a 30-day 95 put for 0.57 at 20% implied volatility. If the price falls to 80 by expiry, the shares lose 20 but the put pays 15, so the loss is 5.57 per share, the maximum. If the price rises to 110, the shares gain 10 and the put expires worthless, leaving 9.43. The protection costs 0.57% of the position for a month in this example; with a realistic put skew, the 95 put would trade at a higher implied volatility and cost more.

Shares at 100 with a 95 put bought for 0.57
Price at expirySharesPutTotal per share
80−20.00+14.43−5.57
95−5.00−0.57−5.57
1000.00−0.57−0.57
110+10.00−0.57+9.43

Protection demand and the put skew

Investors holding equities buy puts to insure against declines, and the sellers of that insurance, often market makers, demand compensation for taking crash risk. That persistent demand is one of the standard explanations for why out-of-the-money index puts carry higher implied volatility than equidistant calls, the put skew that dominates the S&P 500 smile. Indices of tail pricing such as the Cboe SKEW Index are built from the same out-of-the-money puts.

What it implies for dealers

  • A dealer who sells protective puts to clients is short those puts: short gamma and short vega on the downside.
  • Under a delta-hedging assumption, that dealer sells the underlying as prices fall toward the put strikes, which is the mechanism behind the amplified regime of gamma exposure models.
  • The usual GEX convention counts put open interest as dealer short gamma for this reason; it is an assumption, since a put's open interest may also belong to put sellers such as income strategies.
  • When protection is monetised or rolled, the dealer's hedge is reduced, which can add buying after a decline.

In Senzoukria

Senzoukria's GEX module subtracts put open interest by default when computing net gamma exposure, the arithmetic of the convention described above, and its regime panel states that the reading assumes dealers are net short options, which nobody publishes. The 25Δ skew figure, put minus call implied volatility, shows how much the loaded chain is currently charging for downside protection relative to upside calls.

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Frequently asked questions

Is a protective put the same as a stop-loss order?
No. A stop-loss sells at the market once a price is touched and can be filled far below it in a gap; it costs nothing until triggered. A put guarantees the right to sell at the strike until expiry, gaps included, and costs its premium whether or not it is used.
Why are index puts more expensive than calls?
Because of persistent demand for downside protection and because index declines tend to be faster and larger than rallies. Sellers require a premium for bearing that risk, which appears as higher implied volatility on low strikes.

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