Protective Puts for Private Stock
Javier Avalos, co-founder and CEO of Caplight, on building synthetic derivatives of private stock
Protective puts matter because they turn private company stock from an all or nothing bet into something closer to an insurable asset. In practice, a VC or crossover fund pays a premium to lock in a floor under a position, which lets them keep upside if the company keeps compounding but limits damage if a late stage name breaks like WeWork or Katerra. That is a real change in portfolio construction, not just a new trade type.
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Caplight saw hedging dominate its early order book, first through covered calls and then through protective puts, with no naked short demand. That points to real holders trying to manage concentration and liquidity risk, not speculators trying to bet against startups from the outside.
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This is different from traditional private secondary platforms like Semper, Carta, Forge, or Nasdaq Private Market, which mainly help transfer the stock itself. A put lets an investor hedge the economics without waiting months for company approvals, transfer paperwork, and settlement.
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The reason this resonates in venture is simple. Fund returns are concentrated in a few winners, so selling upside through calls can be painful. Buying a put is closer to insurance. It protects a marked up position while preserving the chance that the company becomes the fund returner.
The next step is a private market that looks more like public markets in risk management, with options, baskets, and index like hedges sitting on top of still illiquid underlying shares. As more institutions treat late stage private stock as a managed exposure instead of a locked box, demand shifts from one off liquidity events toward continuous hedging infrastructure.