USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup

-Refer to Exhibit 16.4. A protective put is an appropriate strategy if
A) an investor wishes to generate additional income.
B) an investor wished to insure against a decline in share values.
C) an investor expected share prices to be volatile.
D) an investor expected share prices to remain in a trading range.
E) an investor expected share prices to be volatile but was inclined to be bullish.

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information on put and call options for Citigroup
 
-Refer to Exhibit 16.4. A protective put is an appropriate strategy if
A) an investor wishes to generate additional income. 
B) an investor wished to insure against a decline in share values. 
C) an investor expected share prices to be volatile. 
D) an investor expected share prices to remain in a trading range. 
E) an investor expected share prices to be volatile but was inclined to be bullish.

Quizplus · Accepted Answer

A protective put is a strategy used to insure against a decline in share values. This involves buying a put option on a stock that an investor already owns. If the stock price falls, the put option will increase in value and offset some of the losses from the stock. Therefore, choice B is the correct answer. Choices A, C, D, and E are not appropriate strategies for a protective put.