Products & Their RisksQuestion 85 of 398
An investor who buys a put option is generally:
a.Bearish, expecting the underlying price to fall
b.Bullish, expecting the underlying price to rise
c.Neutral, expecting no price movement
d.Obligated to buy the underlying stock at the strike
Explanation
The buyer of a put has the right to sell the underlying security at the strike price and profits when the underlying price falls below the strike minus the premium paid. Put buyers are therefore bearish, and they may also buy puts to hedge (protect) a long stock position.
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