Kyle believes the price of Ajax shares is about to decrease. If he wants to profit from the decline in price, he should____________ on Ajax shares.
A) sell a put
B) buy a put
C) write a put
D) buy a call

Question

Quizplus · Accepted Answer

Kyle believes the price of Ajax shares is about to decrease. If he wants to profit from the decline in price, he should buy a put. A put gives the holder the right, but not the obligation, to sell a specified number of shares of a particular stock at a specified price on or before a specified date. If the price of Ajax shares decreases, Kyle can exercise his put option and sell his shares at the higher price specified in the option contract, thereby profiting from the decline in price.

Kyle Believes the Price of Ajax Shares Is About to Decrease