What is the primary purpose of a protective put?

The primary purpose of a protective put is to hedge against losses in an underlying asset. When an investor holds a stock or another asset, purchasing a put option allows them to secure a minimum sale price for that asset. This means that if the asset's price falls below a certain level, the investor can exercise the put option to sell the asset at that predetermined price, thus limiting potential losses.

This strategy is essentially an insurance policy on the asset, providing downside protection while still allowing for upside potential. Investors may choose this approach especially in uncertain markets, as it enables them to participate in the asset's potential growth while safeguarding against significant declines.