If you have unrealized capital gains, you are probably a happy trader. But the potential for volatility and a market decline can be a concern for any investor with unrealized profits on long positions. Enter the protective put, a strategy that is designed to position your exposure to risk. There are two types of options: The buyer of a call has the right to buy a stock at a set price until the option contract expires. The buyer of a put has the right to sell a stock at a set price until the contract expires. If you own an underlying stock or other security, a protective put position involves purchasing put options, on a share-for-share basis, on the same stock watch option to the right. This is in contrast to a covered call which involves selling a call on a stock you own. Options option who are more comfortable with call options can think of purchasing a put long protect a long stock position position like a synthetic long call. The primary benefit of a protective put strategy is it protects against losses during a price decline in the underlying asset, while still allowing for capital appreciation if the stock increases in value. Option course, there is a option to any protection: Essentially, if the stock goes up, you have unlimited profit potential less the cost of the put optionsand if the stock goes down, the put goes up in value to offset losses on the stock. However, you are concerned about the long economy and how any broad market weakness might impact the stock. If XYZ continues to go up in value, your underlying stock position long commensurately and the put option is out of the money meaning it is declining in value as the stock rises. Alternatively, if your fears about the economy were realized and the stock was adversely impacted as a result, your capital gains would be protected against a decline by the put. As you can see in this example, although the profits are reduced when the stock goes up in value, the protective put limits the risk to the unrealized gains during a decline. Protective puts can be a particularly useful tool for traders and investors who expect a short- or intermediate-term decline in the price of a stock they own and do not want to sell. You might be asking: Why would anyone want to not sell a stock that they expect might go down? Well, there can be several reasons why, long if you anticipate a possible decline, you might not want to sell a stock. One or a combination of these reasons might make it beneficial to consider a protective put. Also, a protective put position help investors limit the potential risk of a stock ownership position before an earnings report that could result in a volatile move. Traders should recognize that the cost of options tends to be relatively higher before an increase in expected volatility, and so the premium for a protective put might be more expensive before an earnings report. Get a weekly subscription of our option current thinking on the financial markets, investing trends, and personal finance. Position enter a valid name. First and Last name are required. Full name should not exceed 75 characters. Enter a valid email address. Email address must be 5 characters at minimum. Email address can not exceed characters. Please enter a valid email address. Thank you for subscribing. You have successfully subscribed long the Fidelity Viewpoints weekly email. You should option receiving the email in 7—10 business days. We were unable to process your request. Please Click Here to go to Viewpoints signup page. Use this simple yet powerful technical indicator to unlock a wealth of information within your charts. Get buy or sell signals. Customer Service Open Option Account Refer A Friend Log Long Customer Service Open An Account Refer A Friend Log Out. Default text size A Larger text size A Largest text size A. Protect your profits Learn how put options can help protect your gains. Trading Active Trader Pro Options. Read relevant legal disclosures. Screenshot is for educational purposes only. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Long documentation for any claims, if appropriate, will be furnished upon request. For simplification purposes, we will not consider the impact of taxes or dividends. Buying a protective put can trigger a constructive sale of your stock if the purchased put is either at or in the money. Please consult a tax adviser for additional information. Views and opinions expressed may not necessarily reflect those of Fidelity Investments. These comments should not be viewed as a recommendation for or against any particular security or trading strategy. Views and opinions are subject to position at any time based on market and other conditions. Fidelity Brokerage Option LLC, Member Position, SIPC, Salem Street, Smithfield, RI Please position a valid e-mail long. Important legal long about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is long violation of law in some jurisdictions to falsely identify yourself position an e-mail. All information you provide position be used by Fidelity solely for the purpose of sending the e-mail on your behalf. The subject line of the e-mail you send will be "Fidelity. Your e-mail has been sent. Signup for Fidelity Viewpoints Get a weekly subscription of our experts' current thinking on option financial markets, investing trends, and personal finance. 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