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) Purchase a put.
B) Purchase a call.
C) Purchase an index option.
D) Utilize a bearish spread.
E) Utilize a bullish spread.

Question

Quizplus · Accepted Answer

If you wish to delay taking the profit but are worried about short-term market behavior, purchasing a put option can provide some downside protection. A put option gives you the right to sell your stock at a predetermined price (strike price) before the option expires. If the stock price drops significantly, you can exercise your put option to sell the stock at the higher strike price and avoid large losses. This strategy is known as a protective put or a married put. It allows you to delay taking the profit while still protecting yourself against potential losses. Purchasing a call option, an index option, or utilizing a spread strategy would not provide the necessary downside protection.

You Own a Stock That Has Risen from $10 Per