What will be the payoff of the protective put strategy if the stock price is above the exercise price at expiration?

A. Exercise price
B. Stock price
C. Exercise price minus stock price

Correct Answer: B

The protective put position is long put plus long stock. At expiration, the payoff of the put option will be equal to zero as the stock price is above the exercise price. Thus, the payoff of the protective put will be equal to the payoff of long stock i.e. stock price.