A put option on the S&P 500 Index will best protect a portfolio
A) of 100 shares of IBM stock.
B) of 50 bonds.
C) that corresponds to the S&P 500.
D) of 50 shares of AT&T and 50 shares of Xerox stocks.
E) that replicates the Dow.

Question

Quizplus · Accepted Answer

A put option on the S&P 500 Index is designed to hedge or protect against market declines in the S&P 500. Therefore, a portfolio that closely corresponds or is similar to the S&P 500 Index would be best protected by such a put option, as the option's performance would directly correlate with the underlying index's movements.

A Put Option on the S&P 500 Index Will Best