Products & RisksQuestion 39 of 125
An investor who owns 100 shares of a stock and is worried about a near-term decline could best protect the position by:
a.Selling a covered call
b.Writing a naked put
c.Buying a protective put
d.Selling the stock short
Explanation
Buying a put while holding the stock (a protective put) creates a floor: no matter how far the stock falls, the holder can sell at the put's strike. The cost is the premium paid, which acts like insurance and reduces the position's net return if the stock rises.
Practice all 125 questions free — no signup required.
Related questions on this topic
- A long straddle consists of:
- An investor buys 1 XYZ 50 call for 4 and 1 XYZ 50 put for 3 (a long straddle). What are the two breakeven points?
- An investor owns 100 shares of XYZ and sells 1 XYZ call against the position. This strategy is known as:
- An investor buys 100 shares of XYZ at $48 and buys 1 XYZ 45 put for 2 (a protective put). What is the maximum loss?
- The Options Clearing Corporation (OCC) functions as:
- Systematic risk refers to:
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Series 7 General Securities Representative Exam · How we review