You own a stock that has risen from $10 per share to $32 per share.You wish to delay taking the profit but you are troubled about the short run behavior of the stock market.An effective action on your part would be to
A) Buy a put option on the stock.
B) Write a call option on the stock.
C) Purchase an index option.
D) Utilize a bearish spread.
E) Utilize a bullish spread.

Question

Quizplus · Accepted Answer

Buying a put option on the stock will give the holder the right, but not the obligation, to sell the stock at a predetermined price (strike price) within a certain time period (expiration date). By doing so, the investor can protect themselves against a potential decline in the stock price without having to sell the stock immediately. This allows the investor to delay taking the profit and potentially benefit from any further upside, while also limiting their potential downside. Writing a call option, purchasing an index option, or utilizing a bearish or bullish spread may not effectively address the investor's concerns about the short-run behavior of the stock market.

You Own a Stock That Has Risen from $10 Per