Assume in March an investor decides to sell 600 shares of Google stock at its current price of $550 but wants to delay the sale until the next tax year. To ensure the $550 selling price, the investor can purchase six Google puts with an exercise price of $550, a January expiration, and a premium of $38 (total cost of 600 × $38 = $22,800). Consider the following two scenarios:

◨ Scenario 1: Google sells for $580 in January. The investor allows the option to expire worthless and sells the 600 shares at $580 per share. The investor nets $325,200 (600 × $580 − $22,800).

◨ Scenario 2: Google sells for $500 in January. The investor exercises the option and forces the put writer to purchase the 600 shares at $550 per share. The investor nets $307,200 (600 × $550 − $22,800).

The investor has used portfolio insurance to ensure a minimum price of $550 for Google.