AI Hub 24 November 2024 Which of the Following Combinations of Securities Constitutes a Protective Put? Introduction Definition of Protective Put A protective put is an investment strategy involving the purchase of a put option while owning the underlying asset, typically a stock. This strategy is intended to protect against potential declines in the price of the owned asset by offering the right to sell it at a predetermined price. Importance in Investment Strategy Protective puts can be crucial in an investor's portfolio for managing risk without sacrificing the potential for upside gains. This risk management tool is especially relevant in volatile markets, where the threat of adverse price movements is high. Overview of the Article This article delves into the fundamentals of protective puts, explains their mechanics, provides examples of securities combinations, discusses the benefits, debunks common misconceptions, and outlines considerations before implementing this strategy....
