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A put option bought at the same time as its underlying securities in order to hedge the price paid for the securities.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
A strategy to reduce or eliminate the risk of price depreciation on a stock by buying a put option on that stock. When an investor owns a stock and is concerned about price depreciation, he/she may buy a put option, giving him/her the right but not the obligation to sell the stock at a relatively high strike price on or before the expiration date. If the price does depreciate, the investor exercises the option and sells the stock to cover losses and perhaps make a profit. If the price appreciates instead, the investor simply lets the option expire and may keep the stock or sell it at the higher price. A married put may be thought of as insurance against price depreciation.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
A put and stock that are purchased at the same time so that a hedge position can be established. This purchase provides the investor with unlimited upside potential, with the put acting as insurance against losses from a declining stock price. See also protective put.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.