When pursuing portfolio insurance of a stock position,the minimum value of the portfolio is equal to
A)zero
B)strike price times the number of shares of stocks and puts held
C)strike price divided by the number of shares of stocks and puts held
D)stock price times the number of shares of stocks held
E)strike price times the initial value of the portfolio divided by the stock price minus the put price

Question

Quizplus · Accepted Answer

Portfolio insurance often involves using options (such as puts) to hedge against potential losses. The minimum value of the portfolio, when using puts for insurance, is determined by the strike price of the options times the number of shares (or contracts) held. This is because, at minimum, the portfolio's value will be the value at which the investor can sell the stock (or portfolio) according to the put options, regardless of how low the market price of the stock falls.

When Pursuing Portfolio Insurance of a Stock Position,the Minimum Value