Definition of Protective put:
A protective put is a risk-management strategy using options contracts that investors employ to guard against the loss of owning a stock or asset. The hedging strategy involves an investor buying a put option for a fee, called a premium.
Puts by themselves are a bearish strategy where the trader believes the price of the asset will decline in the future. However, a protective put is typically used when an investor is still bullish on a stock but wishes to hedge against potential losses and uncertainty.
A type of securities option that has the ability to guarantee that the owner receives a specific minimum amount of sale proceeds from the exercise price. This type of put is purchased when the buyer also owns shares of the underlying stock.
How to use Protective put in a sentence?
- A protective put is a risk-management strategy using options contracts that investors employ to guard against a loss in a stock or other asset.
- When a protective put covers the entire long position of the underlying, it is called a married put.
- Protective puts offer unlimited potential for gains since the put buyer also owns shares of the underlying asset.
- For the cost of the premium, protective puts act as an insurance policy by providing downside protection from an asset's price declines.
Meaning of Protective put & Protective put Definition