________ can be used to ________ against a decline in the price of the ________ instrument.

Question

Quizplus · Accepted Answer

A put option gives the holder the right, but not the obligation, to sell the underlying instrument at a predetermined price (strike price) within a specified period of time. This can be used to hedge against a decline in the price of the underlying instrument, as the put option gains value as the underlying instrument's price drops. A call option, on the other hand, gives the holder the right to buy the underlying instrument at a predetermined price, which would not protect against a decline in price. Therefore, the best choice is B, a put option can be used to hedge against a decline in the price of the underlying instrument.

________ Can Be Used to ________ Against a Decline in the Price

Can Be Used to Against a Decline in the Price