If an investor sells a stock short, that individual reduces the risk of loss by
A)buying a put
B)buying a call
C)entering a limit order to sell the stock if its price declines
D)increasing the collateral with the broker

Question

Quizplus · Accepted Answer

Buying a call option provides the right, but not the obligation, to buy the stock at a predetermined price. If the stock price increases after selling it short, the investor can limit losses by exercising the call option to buy the stock at the lower strike price, thus covering the short position at a known cost.

If an Investor Sells a Stock Short, That Individual Reduces