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.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Options questions
- If a call option is out of the money at expiration, what happens?
- A covered call strategy provides which main benefit?
- Buying both a call and a put at the same strike price and expiration is known as a:
- A put option has a strike price of $60 and a premium of $4. What is the breakeven price for the buyer?
- A bull call spread is created by:
- The maximum gain for a seller of a put option is:
- Which statement describes a bear put spread?
- A put option with a $30 strike price is trading on a stock currently worth $27. What is the intrinsic value of the put?