Own the underlying and buy an OTM put as downside insurance.
| Symbol | Return % | Sharpe | Max DD % | Win % | Avg/trade % | Trades |
|---|---|---|---|---|---|---|
| SPY | +11.2% | 0.12 | +18.3% | +47.4% | +0.6% | 19 |
| QQQ | +5.0% | 0.04 | +20.7% | +47.4% | +0.3% | 19 |
| IWM | +6.9% | 0.06 | +33.2% | +52.6% | +0.4% | 19 |
| DIA | +26.1% | 0.37 | +12.2% | +73.7% | +1.4% | 19 |
| Avg | +12.3% | 0.15 | +21.1% | +55.3% | — | 19 |
| Parameter | Default | Description |
|---|---|---|
| strike_pct | 0.95 | Put strike (5% OTM) |
| dte | 45 | Days to expiration |
A protective put owns the underlying asset and buys an OTM put (95% of spot) to cap downside risk. It is portfolio insurance — the put limits losses below the strike while preserving full upside participation. The cost is the put premium, which reduces net returns. The strategy is equivalent to a long call in terms of payoff shape. Backtested with 45 DTE cycles, measuring combined stock + put P&L as a percentage of the entry price.
# Protective Put: own stock + buy OTM put
for entry in monthly_entries:
S = spot_at_entry
K = round(S * 0.95 / 5) * 5 # 5% OTM put
T = 45 / 365.25
premium = black_scholes_put(S, K, T, r, sigma)
S_exp = spot_at_expiry
stock_pnl = S_exp - S
put_payoff = max(0, K - S_exp)
pnl = stock_pnl + put_payoff - premium
pnl_pct = pnl / S * 100