<div id="readability-page-1"><p>Earnings season is rife with shakeups, and the last few weeks were filled with massive post-earnings moves, especially from tech players including <strong>Meta Platforms (META), Microsoft (MSFT), </strong>and <strong>Amazon.com (AMZN). </strong>Though the season is already in full swing, we're going to take a look at how traders can utilize options to protect their profits.</p> <h2>A Protective Put Breakdown</h2> <p>One way  traders can &#34;insure&#34; their investment and limit  losses, in case of a sharp selloff, is through <strong>protective puts</strong>. A protective put  locks in a selling price (the strike) for the shares as a safety measure.</p> <p>For instance, let's say you bought 100 shares of Stock XYZ at $100 apiece but value appreciated to $120. However, earnings are around the corner and you're scared the stock may give up some or all of those gains but you also don't want to sell the shares and miss out on potential upside. You could purchase a 110-strike protective put that encompasses the earnings release. That way, if XYZ tumbles back to the century mark after earnings, the protective put allows you to unload your shares at $110-- locking in a 10% profit (minus the cost of the puts, of course).</p> <p>As such, the main goal of a protective put buyer is quite different than that of a “vanilla” put buyer. A protective put buyer is simply using the option as a form of insurance; the trader's ultimate goal is for the shares to move higher and ideally offset the cost of the option, leaving the put to expire worthless. A &#34;vanilla&#34; put buyer, on the other hand, is actively looking for the underlying shares to fall.</p> <h2>Weighing the Risks</h2> <div> <p>While the protective put buyer's goal is to forfeit the initial premium paid for the put-- which represents the maximum risk on the trad-- you don't want to overpay. It's important to select the right strike and options series to accommodate your personal risk tolerance. </p> <p>It is also important to be aware of the risks when trading options ahead of big events such as earnings. When a company has a planned event like earnings on the horizon, options premiums tend to be inflated. As a result, deeper out-of-the-money puts will be more affordable to purchase, but will allow less protection in the end. </p> <p>In addition, the cost of the protective puts depends on time value. A 110-strike put that expires in two weeks will cost less than a put at the same strike expiring in two months, as the latter allows more time for the underlying stock to make a big move.</p> </div></div>

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<p>The article discusses the strategy of using protective puts to manage risk during earnings season, particularly for tech stocks like Meta, Microsoft, and Amazon. A protective put allows investors to lock in a selling price for their shares, providing insurance against potential losses while still aiming for upside. The article emphasizes the importance of selecting the right strike and options series, as well as being cautious of inflated options premiums around earnings announcements. Ultimately, protective puts serve as a risk management tool for traders looking to safeguard profits without selling their shares.</p>

- Earnings season has seen significant volatility, particularly with tech companies like Meta, Microsoft, and Amazon.  
- Traders can use protective puts to safeguard their investments against potential losses while holding onto the stock for upside.  
- This strategy involves selecting appropriate strike prices and understanding option premium dynamics, especially around major events like earnings releases.

How Protective Puts Lower Risk Management