SIE practice questionmediumProtective puts
The primary purpose of a protective put is to:
- ALimit downside risk for shares owned✓ Correct answer
- BIncrease potential upside gain
- CGenerate income from premium
- DSpeculate on price increases
Explanation
Why A — Limit downside risk for shares owned
Protective puts act as insurance, limiting losses if the stock drops. Upside gain and income are not primary aims; speculation is not the main use for this strategy.
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