CFA Practice Question
An investor holding equities believes share prices will rise but wants protection in case the
market falls. What is the most suitable option position?
A. Write a call option.
B. Write a put option.
C. Purchase a put option.
Explanation: The investor wants to hedge the risk of equities falling in value. Purchasing the option will allow him / her to sell shares at a pre-agreed price should the prices fall.
User Contributed Comments 3
| User | Comment |
|---|---|
| ryanp1 | why wouldnt he write a call and collect a premium? |
| xstefxanx | Writing a call option he will lose the chance to make profits above the strike. If he believs that share prices will rise, he won't cut his upside |
| birdperson | it also states he wants downside protection, so LONG PUT |