Derivatives Strategy for Downside Protection

As part of a risk management review, Lumen Capital has decided to explore the use of derivatives to mitigate downside risk in a portfolio heavily weighted in emerging market equities. The portfolio manager is analyzing various strategies involving options and futures contracts. The manager considers how to implement a protective strategy that limits potential losses while still allowing for upside potential if the equities perform well.

Which of the following derivatives strategies would best allow Lumen Capital to protect against losses in their emerging market equity portfolio while still participating in potential gains?