How do you hedge a stock portfolio with puts?

Short answer

You hedge a portfolio with puts by buying put options on an index like SPY or QQQ (or on single stocks you own). If the market falls, the puts gain value and offset some losses. The cost is the premium, so many investors use put spreads or collars to make protection cheaper.

SPY volatility skew, live

As of Oct 16, 7:50 PM ET

25-delta call IV minus 25-delta put IV, in volatility points. Source · Rebel Intelligence.

Sizing the hedge

Estimate exposure: portfolio value × portfolio beta to the index.
Divide by the index price × 100 to get roughly how many contracts offset a 1:1 move.
Most investors hedge only part of the portfolio.

Ways to lower the cost (examples, not advice)

Put spread: buy a put and sell a lower put to cap protection and cost.
Collar: sell a covered call to pay for the put.
Buy further out in time; longer puts cost less per day.

Common questions

How much does portfolio protection cost?

It depends on strike, time and implied volatility. Protection is cheapest when markets are calm and the VIX is low.

Should I hedge with index puts or stock puts?

Index puts are cheaper and cover broad market risk; stock puts cover company-specific risk.

Is hedging worth it?

It reduces drawdowns at a steady cost. It suits investors who cannot afford a large temporary loss.

Go deeper with Rebel Intel

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Educational only, not investment advice. Options involve risk and are not suitable for all investors. See how Intel is reviewed.