A stockholder concerned about the possibility of a price decline could ____ to hedge while still benefiting if the price rises.

Question

Quizplus · Accepted Answer

Buying a put option allows a stockholder to hedge against a potential decline in the stock's price, as it gives the holder the right to sell the stock at a predetermined price, thus limiting potential losses. At the same time, the stockholder can still benefit from any price increase in the stock, as they are not obligated to exercise the option.

A Stockholder Concerned About the Possibility of a Price Decline