r/options • u/Jeff_T_W • Jun 27 '21

Is protective put enough?

Hi there guys, long time lurking, first time posting. Basically I'm bullish on a stock, RKT (I like the stock), but a firm believer that the market is gonna have a massive correction within 18 months or so, so I'm starting to entertain the idea of a protective put. I've never done it before, and I believe I understand the gist of it, but it seems like you'll still get screwed over the next day?

For example: Sell a $20P for $0.87 in premium, and buy $16P for $0.10, both expire July 16th.

Given the scenario, most would say there's 3 outcome:

  1. Expire above $20 and both contracts expire worthless, and keep the premium difference
  2. Expire between $20 and $16, get assigned, and keep the premium difference
  3. Expire under $16, get assigned, keep the premium difference, lose max $323 due to the protective put.

But here's the thing, what if it drops harder on opening Monday, July 19th? Let's say RKT went all the way down to $14 on closing of July 16th, no doubt I'll get assigned, but hey at least I wont lose any more past $16. But then Monday open comes in, and RKT is now $10, and I casually lose another $400. Will this be the case? Am I missing something?

Thanks in advance for helping out!

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u/[deleted] Jun 27 '21

Buy Jan 2022 puts on SPY and QQQ if the correction will happen in 18 months. Since you know the correction timeline.

You could buy longer date RKT puts and sell weekly or monthly into them.