Put Options
An investor owns 100 shares of XYZ stock at $60 and buys an XYZ 60 Put for $4. What is the investor's maximum loss?
With a protective put, maximum loss = Premium paid when the put strike equals the stock purchase price. The put guarantees the ability to sell at $60, so the only loss is the $4 x 100 = $400 premium.
Complete Analysis & Legal Rationale
With a protective put, maximum loss = Premium paid when the put strike equals the stock purchase price. The put guarantees the ability to sell at $60, so the only loss is the $4 x 100 = $400 premium.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Governs options accounts, approvals, and related supervisory requirements (verify current text).
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.