If Carolyn plans to sell a financial security in the future, which of the following should she do to hedge the risk of a price decrease?
A)buy a call option
B)sell a call option
C)buy a put option
D)sell a put option

Question

Quizplus · Accepted Answer

To hedge against the risk of a price decrease, Carolyn should buy a put option. This gives her the right to sell the security at a certain price, called the strike price, regardless of its market value. If the price of the security decreases, she can exercise the put option and sell the security at the higher strike price, limiting her losses.

If Carolyn Plans to Sell a Financial Security in the Future