The option buyer who expects a stock price to decline will purchase
A) a put.
B) a convertible bond.
C) a warrant.
D) a call.

Question

Quizplus · Accepted Answer

The purchase of a put option gives the buyer the right to sell the underlying stock at a predetermined price, known as the strike price, before the option expires. If the stock price declines below the strike price, the buyer can exercise the option and sell the stock at a higher price than the market price, resulting in a profit. Therefore, purchasing a put option is the best choice for an option buyer who expects a stock price to decline.

The Option Buyer Who Expects a Stock Price to Decline