Travis owns a stock that is currently valued at $45.80 a share.He is concerned that the stock price may decline so he just purchased a put option on the stock with an exercise price of $45.Which one of the following terms applies to the strategy Travis is using?
A)put-call parity
B)covered call
C)protective put
D)straddle
E)strangle

Question

Quizplus · Accepted Answer

Travis is using a protective put strategy because he is buying a put option to protect his stock holdings in case of a decline in stock price. This strategy allows him to limit his potential losses while still benefiting from any potential gains in the stock price. Put-call parity is a principle that relates the prices of call and put options, and is not relevant to this scenario. Covered call, straddle, and strangle are all different option strategies that involve both buying and selling options, and are not relevant to Travis' strategy of solely buying a put option.

Travis Owns a Stock That Is Currently Valued at $45