You own a stock that has risen from $10 per share to $32 per share. You wish to delay taking the profit, but you are troubled about the short-run behavior of the stock market. An effective action on your part would be to
A) buy a put option on the stock.
B) write a call option on the stock.
C) purchase an index option.
D) purchase an interest rate option.
E) write a put option on the stock.

Question

Quizplus · Accepted Answer

Buying a put option on the stock would give you the right, but not the obligation, to sell the stock at a specific price (strike price). This provides downside protection in case the stock price drops, allowing you to delay taking the profit while limiting potential losses.

You Own a Stock That Has Risen from $10 Per