The derivative based strategy known as portfolio insurance involves
A) The sale of a put option on the underlying security position.
B) The purchase of a put on the underlying security position.
C) The sale of a call on the underlying security position.
D) The purchase of a call on the underlying security position.
E) b and d.

Question

Quizplus · Accepted Answer

Portfolio insurance involves purchasing a put option on the underlying security position. The put option provides a floor on the portfolio's value, ensuring that losses are limited in the event of a downturn in the market. This strategy allows investors to benefit from potential upside while also protecting against downside risk.

The Derivative Based Strategy Known as Portfolio Insurance Involves