Options
Protective Put Definition
Protective put definition for Series 7 candidates, with hedge example, breakeven logic, common mistakes, and options practice links.
Definition
Exam relevance
Practice links
Definition
A protective put combines long stock with a long put on the same stock. The put gives the investor a floor by allowing the stock to be sold at the strike price.
Why it matters on the Series 7
The exam commonly tests protective puts as downside protection for a customer who wants to keep stock ownership but limit loss below a stated level.
Example
A customer owns stock at 50 and buys a 50 put for 3. The put protects the stock below 50, but the premium raises the breakeven to 53.
Common mistakes
- Forgetting that buying protection costs premium and raises breakeven.
- Confusing a protective put with a covered call income strategy.
- Treating the hedge as eliminating all risk, including premium cost.
Related concepts
- Options formulas
Review stock-plus-option breakevens.
- Options practice questions
Practice protective put scenarios.
- Series 7 suitability
Connect hedging to customer objectives.
- Back to the Series 7 glossary
Use the curated glossary hub to move between high-yield terms without a large glossary dump.