You believe the price of a stock is going to decline within the next three months. Which one of the following option payoff profiles will reflect a profit if your belief is correct?
A) Buying a call.
B) Selling a call.
C) Buying a put.
D) Selling a put.
E) None of these.

Question

Quizplus · Accepted Answer

Buying a put option gives the holder the right, but not the obligation, to sell a stock at a specified price (strike price) before a specified date (expiration date). If the stock price declines below the strike price, the put option becomes profitable because it allows the holder to sell the stock at a higher price than the current market price.

You Believe the Price of a Stock Is Going to Decline