Which one of the following options has a payoff profile that adds value to a firm when prices unexpectedly decline?
A) Buying a call
B) Buying a put
C) Selling a call
D) Selling a put
E) Renting a call

Question

Quizplus · Accepted Answer

Buying a put option adds value to a firm when prices unexpectedly decline because it gives the firm the right to sell the underlying asset at a predetermined price, thus protecting against price drops.

Which One of the Following Options Has a Payoff Profile