You buy at $222, set your stop at $216 — a planned 2.3% loss. The market opens with a gap below your stop, and the order fills at $213: almost double the loss you’d calculated. This happens to anyone using a regular stop loss. There’s a way to avoid it.
First, the Long Put as a bearish bet
Continuing the series on learning options with ChatGPT, after the call came its opposite: the put. Buying a put is exactly the same mechanism as buying a call, just looking downward — you pay a premium for the right, not the obligation, to sell an asset at a price (the strike) before a given date. If the price falls, that right gains value; if it rises or doesn’t fall enough, the put can lose value or expire worthless.
Example: a speculative Long Put on NVIDIA
Forecast: NVIDIA below $205 within a month
Premium paid (max loss): $493
Break-even: strike 205 − premium ≈ $200
POP (probability of profit): 29%, with a delta of 0.34
If NVIDIA closes at $194, the profit is around $928. If it falls to $180, around $2,042. Nothing far-fetched — the chart had already shown drops of that size before. As with any long position, delta is negative (rises if the underlying falls), theta is negative (time works against you), vega is positive (a rise in implied volatility helps), and gamma is positive.
The second use, much more interesting: protecting what you already own
Here the whole approach changes. Imagine you already own 100 shares of NVIDIA you’ve held for months or years. Instead of setting a traditional stop loss to protect against a sharp drop, you can buy a put. “Why, if I already have a stop loss?” — because a stop loss has a problem almost nobody accounts for until it happens to them: gaps.
The market closes and reopens, and a lot can happen in between (pre-market, news, earnings). If you bought at $222 and set your stop at $216 (an assumed 2.3% loss), but the market opens below your stop, the order doesn’t fill at $216 — it fills at the opening price, which could be $213 or lower. In this example, the real loss ended up nearly double what was expected.
Why a put doesn’t have that problem
If instead of a stop loss you’d bought a put with a strike at $216, the outcome is completely different: you hold the right to sell at $216, no matter what the price does — it doesn’t matter if NVIDIA trades at $211, $200, or $100. That right doesn’t depend on where the market opens or whether there was a gap. You bought it, and it’s guaranteed through expiration.
Setting a stop loss costs nothing. Buying a put to protect yourself does have a cost: the premium. In exchange for that premium, you lock in your selling price regardless of how the market moves while you’re not watching the screen.
The bonus a regular stop loss can’t give you
There’s a second scenario where the put clearly wins: when the price, after dropping, recovers before expiration. With a regular stop loss, once it triggers you’re already out — if the stock bounces back afterward, you miss it entirely. With the put, you’re not obligated to exercise the right: if the stock ends up rising and your expiration hasn’t arrived yet, you simply let the option expire worthless. You lose the premium paid, but you keep your shares and benefit from the subsequent rise.
Conclusion
A stop loss is free but doesn’t guarantee your exit price when the market opens with a gap. A put bought for protection costs a premium, but guarantees you can sell at the agreed strike no matter what — and, as a bonus, lets you stay in the position if the price turns around before expiration. It’s not just any stop loss: it’s a stop loss on steroids. You can set up this same example on ProRealTime for any stock you already hold.
