The primary purpose of a protective put is
A) The increase in potential gains
B) The guarantee of a higher return
C) The elimination of downside risk
D) The receipt of the option premium
E) The increase in risk and thus an increase in returns

Question

Quizplus · Accepted Answer

The primary purpose of a protective put is to eliminate downside risk. It acts as a form of insurance against a possible decrease in the value of the underlying asset. While it may limit potential gains, it helps protect against potential losses.

The Primary Purpose of a Protective Put Is