Put Options
An investor owns 100 shares of XYZ at $50 and buys a put with a $50 strike price for $4. What is the maximum loss on this position?
In a protective put, the maximum loss is limited to the premium paid for the put. The put guarantees the ability to sell at $50, so even if the stock goes to zero, the investor loses only the $4 premium ($400 total). Thi
Complete Analysis & Legal Rationale
In a protective put, the maximum loss is limited to the premium paid for the put. The put guarantees the ability to sell at $50, so even if the stock goes to zero, the investor loses only the $4 premium ($400 total). This is the benefit of a protective put - it limits downside risk.
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:
Matches the verified teaching point in the explanation.
Does not match the governing concept in the explanation.
Does not match the governing concept in the explanation.
Does not match the governing concept in the explanation.
Official Standard: Governs options accounts, approvals, and related supervisory requirements (verify current text).
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA materials.