A put option on the S&P 500 index will best protect ________
A)a portfolio of 100 shares of IBM stock.
B)a portfolio of 50 bonds.
C)a portfolio that corresponds to the S&P 500.
D)a portfolio of 50 shares of AT&T and 50 shares of Xerox stocks.
E)a portfolio that replicates the Dow.

Question

Quizplus · Accepted Answer

A put option on the S&P 500 index will best protect a portfolio that corresponds to the S&P 500. This is because the put option will increase in value if the S&P 500 decreases, which will help offset any losses in the portfolio. It may not be as effective in protecting portfolios with individual stocks or other indexes.

A Put Option on the S&P 500 Index Will Best