What strategy could be considered insurance for an investment in a portfolio of stocks?

Question

Quizplus · Accepted Answer

Protective put is the best choice as it involves buying a put option for the same number of shares as the ones held in the portfolio. In case the stock price goes down, the put option will increase in value, thereby offsetting the losses in the portfolio. This strategy provides a form of insurance for the investment in the portfolio of stocks. Covered calls, short puts, and straddles do not provide insurance in the same way as protective puts do.

What Strategy Could Be Considered Insurance for an Investment in a Portfolio