With earnings announcements happening almost daily in the coming weeks the option to buy some temporary insurance in the form of protective puts may be prudent.

Q4 earnings season is upon us, with Delta Airlines (DAL) and major banks beginning to report next week. Earnings season can be one of the most volatile times for stocks. With earnings announcements happening almost daily in the coming weeks, many investors may wonder: "Am I going to hear any bad news from the companies that I own? And if the news is not good, how will my positions hold up?" Additionally, the ongoing geopolitical tensions along with continued conversation around interest rates and tariffs have provided plenty of uncertainty for investors as Q4 begins. Fortunately, if investors would rather not just sit on the sidelines and hope to luckily avoid any earnings disasters, there is the option to buy some temporary insurance in the form of protective puts. First, we'll review a few basics on puts, and then we’ll offer three examples.

Many investors have difficulty understanding puts, but the strategy is relatively simple. If anyone owns a car, they likely own a put on it, provided they carry collision insurance. A put is simply a contract giving the buyer the right, but not the obligation, to sell stock at a specific price (the strike price) during a specified period. The underlying stock can be "put," i.e., sold to the writer of the put for the strike price, anytime between the time the option is purchased and the time it expires. Similarly, if someone has an accident in their car, there is an insurance policy that states that the underwriter will pay the cost of the damage. Conceptually, a put is the same thing - pay a premium to protect a stock position, the only difference is that we are insuring against damage to the value of the stock rather than a car. In either case, if an accident occurs, losses are mitigated by the insurance purchased. The payoff diagram below from Investopedia provides a decent visual.

An essential characteristic of protective puts is that they do not cap the upside potential within the stock.. Instead, if the stock hedged with puts continues to move higher going forward, an investor participates in the upside at all points and returns are only diminished by the premium paid for the put. Just as no one relishes paying for car insurance, no one is excited about paying the premium for a protective put. Investors must ask whether it is worth laying out the premium to have this insurance in place. If the answer is yes, then consider buying protective puts on stocks owned.

Before getting into today’s examples, five additional points:

• Only buy one put for every 100 shares owned (or want to hedge). Don’t over leverage by buying more options than needed to protect the position.
• If using puts to hedge an earnings report, make sure to buy puts that expire not too far after earnings. That way we aren’t paying for time we don’t need to hedge. 
• At-the-money strikes are useful for hedging the current value of the underlying stock position. However, if only wanting to hedge a 5% drop or larger, then use an out-of-the-money option.
• Protective puts are most useful on stocks that have run hot going into earnings and either have little or no support nearby.

The stocks discussed below are non-exhaustive, and other protective put candidates could include names from other sectors. Stocks like Tapestry Inc. (TPR) and Freeport-McMoRan Inc. (FCX) serve as further examples of potential candidates.

Goldman Sachs (GS) – Banks – Along with a number of other banks, Goldman Sachs (GS) will report earnings early next week on 1/13. The stock just capped off 2025 up more than 50% and has kicked off 2026 up 6% (thru 1/8), besting market indices in both periods. GS has maintained a positive long-term technical picture since late 2022, having maintained at least a 3 TA rating since that time and a 5 TA rating since June last year. The stock has sustained a positive trend since May last year and returned to a buy signal in early December before rallying to new highs at $960 this month. Recent action has extended the current column of Xs into overbought territory, well above current support in the $700 range and even the stock’s 50-day moving average (middle of the 10-week trading band). With current support roughly 18% away from current prices, GS, along with a number of other banks, are prime candidates for protective puts.

L3Harris Technologies (LHX) – Aerospace Airline – The start of 2026 has brought positive action to a number of stocks within the Aerospace Airline subsector, including the likes of Delta Airlines (DAL) and United Airlines (UAL) along with defense names. The stock just capped off 2025 up almost 40% and has kicked off 2026 up 10% (thru 1/8), besting market indices in both periods. LHX has maintained at least a 3 TA rating since May of last year, and improved to a 4 for 5’er after giving a market RS buy signal against the S&P 500 Equal Weight Index (SPXEWI). The stock has sustained a positive trend since May last year and returned to a buy signal in early December before continuing to new highs. Thursday’s (1/8) action brought the chart above $336 before the stock closed in the mid $320s, above the top 10-week trading band. With the extended column of Xs and current support roughly 14% way from current prices, LHX, along with other defense names with extended technical pictures, is another candidate for protective puts.