Which of the following methods might be used to protect a profit on a diversified portfolio of stocks?
A) Buy S&P 500 Index put options.
B) Buy put options on a S & P 500 based ETF.
C) Write S&P 500 Index put options.
D) Either A or B, but not C.

Question

Quizplus · Accepted Answer

Buying S&P 500 Index put options (A) or buying put options on an S&P 500 based ETF (B) are strategies to protect a diversified portfolio of stocks because they offer a hedge against a market downturn. Writing S&P 500 Index put options (C) would not protect a portfolio since it involves selling the right to sell the index at a certain price, potentially obligating the writer to buy the index at a higher price than market value if the index falls.

Which of the Following Methods Might Be Used to Protect