Asked by Amber Koeuth on Jun 05, 2024
Verified
A protective put strategy is
A) a long put plus a long position in the underlying asset.
B) a long put plus a long call on the same underlying asset.
C) a long call plus a short put on the same underlying asset.
D) a long put plus a short call on the same underlying asset.
E) None of the options are correct.
Protective Put
Purchase of an asset combined with a put option on that asset to guarantee proceeds at least equal to the put’s exercise price.
Underlying Asset
The financial asset upon which a derivative instrument, such as a futures or options contract, is based.
- Describe strategies involving options, including covered calls and protective puts.
Verified Answer
HK
Hunter KariusJun 06, 2024
Final Answer :
A
Explanation :
A protective put strategy involves buying a put option to protect against potential losses in the underlying asset, while also holding a long position in that asset. This combination allows the investor to enjoy the benefits of asset ownership (like dividends or asset appreciation) while having a safety net (the put option) in case the asset's price falls.
Learning Objectives
- Describe strategies involving options, including covered calls and protective puts.