Protective put

Checked October 2026

A protective put owns the shares and buys a put below the market, so a drop past that strike is floored and the shares still rise if the market does. Cboe's PPUT puts the strike 5% under the S&P 500. Backtoast ran it. Cboe's version made 5.4% a year at +0.70% a trade, but failed our test on trade frequency, capacity, outlier dependence and the buy-and-hold benchmark.

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Protective put

It's insurance bought a month at a time. A crash month loses about 5% plus the cost of the put, and the rest of the months pay for a put that expires worthless, so it trails the index when markets are calm.

The put is the first listed strike below 95% of the index, bought on the third Friday, held to the next monthly expiry and then replaced.

A collar strategy sells a call above the market to pay for part of the put.

When it works

A protective put pays in a sharp sell-off, when realized volatility comes in above the implied volatility the put was priced at and the index falls well past the strike. Traders use it to keep their shares through a drop they're worried about, with a known worst case, instead of selling. A put further below the market costs less for a lower floor, a longer expiry costs less a month, and a draft can test either before you spend a full test.

Origins

Cboe publishes the rule as its PPUT index. Its fact sheet has PPUT at 7.2% a year from 1986 to 2019, against 10.4% for the S&P 500, and a 2021 Cboe note counts 18 months with drops of 6% or more from 1986 to 2021, against 35 for the index. The run used SPY in place of SPX, from late 2021 to the end of 2025, and didn't credit SPY's dividends, roughly 1.3% a year.

The run is Backtoast's, from 29 October 2026, after costs.