You currently own 300 shares of Microsoft stock.If you purchase options on this stock to protect against future declines in the price of the stock you are implementing which one of the following?
A)covered call
B)naked call
C)protective put
D)bear spread
E)straddle

Question

You currently own 300 shares of Microsoft stock.If you purchase options on this stock to protect against future declines in the price of the stock you are implementing which one of the following?
A)covered call
B)naked call
C)protective put
D)bear spread
E)straddle

Quizplus · Accepted Answer

Protective put involves purchasing put options on a stock you currently own in order to protect against a potential decline in the stock's price. This is the best choice for the scenario given because it allows the investor to limit their losses in case the stock price does decrease while still maintaining ownership of the stock. Covered call involves selling call options on a stock you currently own, naked call involves selling call options without owning the underlying stock, bear spread involves simultaneously buying and selling call options to profit from a decline in stock price, and straddle involves purchasing both call and put options at the same strike price and expiration date to profit from volatility in the stock price.

You Currently Own 300 Shares of Microsoft Stock