A protective put is an options strategy that involves buying a put option to protect against a potential decline in the price of an underlying asset. It is used to hedge against losses in the event of a market downturn.
Protective Put is an investment strategy used by investors to protect their portfolios from market downturns. It involves buying a put option on a stock or index that the investor owns. A put option gives the investor the right, but not the obligation, to sell the underlying asset at a predetermined price (the strike price) before the option expires.
The protective put strategy is used by investors who want to protect their portfolios from market downturns. It is a form of hedging, which is a risk management technique used to reduce the potential losses from an investment. By buying a put option, the investor is able to limit their losses if the stock or index falls in value.
The protective put strategy is a relatively simple strategy to implement. The investor buys a put option on a stock or index that they own. The investor then sets the strike price at a level that they are comfortable with. If the stock or index falls below the strike price, the investor can exercise the option and sell the underlying asset at the predetermined price. This limits the investor’s losses if the stock or index falls in value.
The protective put strategy is a popular strategy among investors who want to protect their portfolios from market downturns. It is a relatively simple strategy to implement and can be used to limit losses if the stock or index falls in value. However, it is important to remember that the investor will still incur losses if the stock or index falls below the strike price. Therefore, it is important to choose the strike price carefully and to understand the risks associated with the strategy.