Travis owns a stock that is currently valued at $45.80 a share. He is concerned that the stock price may decline so he just purchased a put option on the stock with an exercise price of $45. Which one of the following terms applies to this strategy?
A) Put-call parity
B) Covered call
C) Protective put
D) Straddle
E) Strangle

Question

Quizplus · Accepted Answer

Travis is using a protective put strategy to hedge against the risk of his stock price declining. By purchasing a put option with an exercise price of $45, he has the right to sell his shares at that price, protecting himself from potential losses if the stock price does indeed decrease.

Travis Owns a Stock That Is Currently Valued at $45