When you purchase a put option while still holding the underlying stock,it is known as a:
A)protective put.
B)protective call.
C)speculative put.
D)speculative call.
E)downside put.

Question

Quizplus · Accepted Answer

When you purchase a put option while still holding the underlying stock, it is known as a protective put. This strategy is used to protect the stock from a downward movement in the market. If the stock price drops, the put option will increase in value, offsetting the loss in the stock price. Thus, the investor can limit their potential loss while still holding onto the stock.

When You Purchase a Put Option While Still Holding the Underlying