CFA Practice Question

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
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