You own $75,000 worth of stock and you are worried the price may fall by year end in 6 months.You are considering either using puts or calls to hedge this position.Given this,which of the following statements is/are correct?
I.One way to hedge your position would be to buy puts.
II.One way to hedge your position would be to write calls.
III.If major stock price declines are likely the hedging with puts is probably better than hedging with short calls.
A) I only
B) II only
C) I and III only
D) I, II and III

Question

Quizplus · Accepted Answer

Buying puts provides a direct hedge against a decline in stock price, while writing calls can generate income but may not fully protect against a decline. If major declines are expected, puts offer better protection.

You Own $75,000 Worth of Stock and You Are Worried