A protective put strategy involves purchasing a put option for a stock that the investor already owns. This strategy provides downside protection, effectively acting as an insurance policy against a decline in the stock's price. The put option gives the investor the right, but not the obligation, to sell the stock at a predetermined strike price within a specified time frame.

Here's how it works: if the stock price falls below the strike price of the put option, the investor can exercise the option, selling the stock at the strike price and thus limiting the loss. For instance, if an investor owns shares of a company currently trading at $50 and buys a put option with a strike price of $45, they are protected if the stock drops below $45. If the stock falls to $40, the investor can still sell it at $45, mitigating the loss.

The cost of purchasing the put option, known as the premium, is the trade-off for this protection. While it reduces the overall profit potential if the stock price rises or stays the same, the protective put strategy provides peace of mind and financial security against significant losses. It's particularly useful in volatile markets or when the investor anticipates potential short-term declines but wishes to retain long-term ownership of the stock.