You own a stock that has risen from €10 per share to €32 per share. You wish to delay taking the profit but you are troubled about the short run behaviour of the stock market. An effective action on your part would be to
A) buy a put option on the stock.
B) write a call option on the stock.
C) purchase an index option.
D) utilise a bearish spread.
E) utilise a bullish spread.

Question

Quizplus · Accepted Answer

Buying a put option on the stock allows the investor to protect their gains and limit their losses if the stock market experiences a short-term decline. This strategy allows the investor to delay taking the profit while also providing a level of protection. Writing a call option, purchasing an index option, or utilising a bearish or bullish spread would not necessarily provide the same level of protection and could still result in losses if the stock market experiences a decline.

You Own a Stock That Has Risen from €10 Per