When selecting among various put options with different strike prices,in order to hedge a long asset position,which of the following statements is true?
A) Higher strike puts cost more and provide higher floors
B) Higher strike puts cost less and provide higher floors
C) Lower strike puts cost more and provide higher floors
D) Lower strike puts cost less and provide higher floors

Question

Quizplus · Accepted Answer

Higher strike puts cost more because they provide more protection against a larger decline in the asset's price. They also provide higher floors because they have a lower break-even point. Therefore, the best choice for hedging a long asset position would be to select higher strike puts.

When Selecting Among Various Put Options with Different Strike Prices,in