What is a protective put option and when is it actually used?

In a protective put the trader buys a cash market position and then protects the downside risk by attaching a put option. Here the trader continues to be positive on the stock but also wants to protect the downside risk by adding a put option. Assume that you bought SBI at Rs.280 and then decided to protect the position by attaching a 275 put option at a premium of Rs.5. Here is how the payoffs will look like.

Bought SBI in spot market at Rs.280 and bought Rs.275 put option at Rs.5
Option Strike	Stock Buy Price	Market Price	P/L Spot	Option ITM/OTM	Option Premium	P/L on option	Net Profit / loss
275	280	220	-60	ITM	-5	55	-10
275	280	225	-55	ITM	-5	50	-10
275	280	230	-50	ITM	-5	45	-10
275	280	235	-45	ITM	-5	40	-10
275	280	240	-40	ITM	-5	35	-10
275	280	245	-35	ITM	-5	30	-10
275	280	250	-30	ITM	-5	25	-10
275	280	255	-25	ITM	-5	20	-10
275	280	260	-20	ITM	-5	15	-10
275	280	265	-15	ITM	-5	10	-10
275	280	270	-10	ITM	-5	5	-10
275	280	275	-5	ATM	-5	0	-10
275	280	280	0	OTM	-5	0	-5
275	280	285	5	OTM	-5	0	0
275	280	290	10	OTM	-5	0	5
275	280	295	15	OTM	-5	0	10
275	280	300	20	OTM	-5	0	15
275	280	305	25	OTM	-5	0	20
275	280	310	30	OTM	-5	0	25
275	280	315	35	OTM	-5	0	30
275	280	320	40	OTM	-5	0	35
275	280	325	45	OTM	-5	0	40
275	280	330	50	OTM	-5	0	45
275	280	335	55	OTM	-5	0	50
275	280	340	60	OTM	-5	0	55

There are some interesting points that emerge from the above payoff table. Firstly, the maximum loss of the protective put position is restricted to Rs.10, however low the price of SBI may go. The loss of Rs.10 is made up of Rs.5 premium paid on the put, which is a sunk cost, and the difference of Rs.5 between the spot price purchase and the strike price of the put (280 – 275). That is because once the cost of Rs.10 is covered then whatever is lost on the stock is gained on the put option and the position becomes neutral from there on. However, on the upside, the position is profitable once the cresses Rs.285. At that point the purchase price of the stock at Rs.280 and the option premium of Rs.5 is fully covered. From that point upwards, the profits on the protective put position can be unlimited.