The derivative based strategy known as portfolio insurance involves
A) the sale of a put option on the underlying security position.
B) the purchase of a put on the underlying security position.
C) the sale of a call on the underlying security position.
D) the purchase of a call on the underlying security position.
E) the simultaneous sale of an out-of-the-money put and purchase of an out-of-the-money call.

Question

Quizplus · Accepted Answer

Portfolio insurance involves purchasing a put option on the underlying security position. This provides protection against a decline in the value of the portfolio. If the value of the portfolio falls, the put option will increase in value, offsetting some or all of the losses.

The Derivative Based Strategy Known as Portfolio Insurance Involves