The primary purpose of a protective put is to:
A) ensure a maximum purchase price in the future.
B) offset an equivalent call option.
C) limit the downside risk of asset ownership.
D) lock in a risk-free rate of return on a financial asset.
E) increase the upside potential return on an investment.

Question

Quizplus · Accepted Answer

The primary purpose of a protective put is to limit the downside risk of asset ownership. This is done by purchasing a put option for the underlying asset, which grants the right to sell the asset at a predetermined price (strike price) within a specified period. If the asset's price falls, the protective put will offset some or all of the loss.

The Primary Purpose of a Protective Put Is To