What it is:
How it works (Example):
A protective put is usually used by an investor who has unrealized gains on a stock. If there are concerns about the stock losing value, a protective put allows the investor to sell the stock at the put's strike price until the option contract expires, no matter how much the stock's value decreases. If the price of the stock suddenly and significantly decreases, the owner has time to sell the stock without being hurt by the loss.