Stock index options can be used for which of the following investment purposes?
I. protect a portfolio from market declines
II. speculate on the price appreciation of a particular common stock
III. take advantage of a leverage opportunity
IV. create a portfolio hedge
A) I and IV only
B) II and IV only
C) I and III only
D) I, III and IV only

Question

Quizplus · Accepted Answer

Stock index options can be used to protect a portfolio from market declines (I) and create a portfolio hedge (IV), both of which are strategies to manage risk. They also allow investors to take advantage of leverage opportunities (III), meaning investors can control a large amount of assets with a relatively small investment. However, they are not used to speculate on the price appreciation of a particular common stock (II) because they are based on an index, not individual stocks.

Stock Index Options Can Be Used for Which of the Following