You believe the price of a stock is going to decline within the next three months. Which one of the following option payoff profiles will reflect a profit if your belief is correct?
A)buying a call
B)selling a call
C)buying a put
D)selling a put
E)none of the above

Question

Quizplus · Accepted Answer

Buying a put option gives the holder the right to sell the stock at a fixed price, known as the strike price, within a specified time period. If the stock price declines, the value of the put option will increase, allowing the holder to sell the stock for a higher price than its current market value, resulting in a profit.

You Believe the Price of a Stock Is Going to Decline