The owner of a large,diversified stock portfolio could hedge against a steep decline in prices by

Question

Quizplus · Accepted Answer

Buying put options on a share index allows the owner to sell the index at a predetermined price, providing a form of insurance against a decline in prices. The other options do not provide the same level of protection. Selling put options exposes the owner to potential losses if the index declines. Buying both call and put options (a straddle) can be expensive and may not provide adequate protection if the decline in prices is not significant.

The Owner of a Large,diversified Stock Portfolio Could Hedge Against