Long calls & puts
How do I use long puts as a portfolio insurance hedge against systemic market selloffs?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Using long puts as portfolio insurance means buying put options on a broad index or individual holdings to offset losses during a market decline, similar to purchasing a protective policy against downside risk.
How it works
The cost of this protection is the premium paid, which reduces overall portfolio returns in flat or rising markets but provides a defined, capped-loss hedge during significant market selloffs.
An example
An investor holding a stock portfolio might buy SPX or SPY puts a few strikes below current levels to limit losses if the broader market drops sharply over the hedge's duration.
Risk & limitations
Hedge costs recur each time puts expire and need to be replaced, so continuous portfolio insurance can meaningfully erode returns over long periods without a market decline.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.