What advantage does a put option provide to an investor?

A put option provides the advantage of setting a minimum sale price for the underlying security. This occurs because holding a put option gives the investor the right, but not the obligation, to sell the underlying asset at a predetermined strike price before the option expires. If the market price of the asset falls below this strike price, the investor can exercise the option, effectively preventing further losses beyond that strike price. This mechanism allows investors to hedge against declines in the value of an asset, ensuring that they can sell at a price that is more favorable compared to the current market conditions.

The other available choices do not accurately describe the nature of put options. For instance, while they can provide downside protection, they do not guarantee profits or the full recovery of investments. In fact, if the underlying asset appreciates, the investor might not exercise the option, which could result in a loss equivalent to the premium paid for the option. Additionally, the notion of unlimited potential losses is incorrect in relation to put options, as they limit losses to the premium paid for the option and the potential losses associated with the asset itself if not hedged.