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In this video we are talking about whether or not buying spy put options can protect your portfolio. Protect your portfolio by purchasing SPY Options, particularly SPY Protective Put options. In this video we back-test the 2022 SPY Recession to see how SPY Protective Put Options actually perform in a portfolio.

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A protective put option is an options strategy used by investors to protect their stock holdings against a potential decline in the market value of the stock. Here's a detailed look into protective puts:

What is a Protective Put?
Definition: A protective put involves buying a put option for stocks that you already own. This strategy is also known as a "married put" or "portfolio insurance."
Purpose: The primary aim is to limit downside risk. If the stock price falls, the investor can exercise the put option to sell the stock at the strike price, which is usually above the market price at that point, thereby minimizing losses.

How It Works:
Owning the Stock: You start by owning shares of a company, let's say ABC Corp.
Buying the Put Option:
Strike Price: This is the price at which you can sell your shares if you choose to exercise the option. Typically, you would choose a strike price near or below the current market price of the stock.
Expiration Date: The put option will have an expiration date. The cost (premium) of the option will vary based on how long until expiration, the stock's volatility, and other factors.
Scenario If Stock Price Drops:
If ABC Corp's stock price drops below the strike price of the put option before expiration, you can exercise your option. You sell your shares at the strike price, which is higher than the market price, thus reducing your loss.
Scenario If Stock Price Rises or Stays Stable:
If the stock price stays the same or goes up, the put option might expire worthless, and you would only lose the premium paid for the put option. However, your stock position would still benefit from any price increase.

Key Points:
Cost: The cost of the protective put is the premium paid for the option, which reduces the overall return if the stock price does not drop.
Risk Management: This strategy caps the potential loss at the level where the stock price equals the strike price minus the premium paid for the put.
Insurance Analogy: Think of a protective put like insurance on your car. You pay a premium for protection against potential loss, but if nothing bad happens, you've lost the premium with no physical damage to your car.
Breakeven Point: The breakeven point for this strategy involves the stock price needing to rise above the purchase price of the stock plus the premium paid for the put option.
Flexibility: You aren't obligated to exercise the put option if the stock price goes down; you can sell the put option itself if it has increased in value due to an increase in implied volatility or time decay hasn't significantly eroded its value.

Protective puts are particularly popular among investors who have a long-term view on a stock but want to hedge against short-term volatility or unforeseen downturns. However, they should be managed carefully due to the costs involved and the impact those costs have on the overall return of the investment.

#protectiveputs #spyoptions #spyputoptions