uestion 1 (1 point) Which of the following describes a protective put? A long pu
ID: 2811992 • Letter: U
Question
uestion 1 (1 point) Which of the following describes a protective put? A long put option on a stock plus a long position in the stock A long put option on a stock plus a short position in the stock A short put option on a stock plus a short call option on the stock A short put option on a stock plus a long position in the stock Save Question 2 (1 point) Which of the following describes a covered call? A long call option on a stock plus a long position in the stock A long call option on a stock plus a short put option on the stock A short call option on a stock plus a short position in the stock A short call option on a stock plus a long position in the stock Save Question 3 (1 point) When the interest rate is 5% per annum with continuous compounding, which of the following creates a principal protected note worth $1000?Explanation / Answer
ANSWER:
A protective put is a risk management strategy that is used to protect the holder of stock from the losses on stock arising out of the fall in the stock prices, to protect against these losses the put is purchased. Thus a protective put is a long put option on a stock plus a long position in the stock. The long put option acts as an insurance against fall in the stock prices that the investor currently is long on.
A protective put position is taken when you are bullish on a stock so that you take a long position in the stock but at the same time you want downward protection from losses arising from falling stock price so that a put option is purchased(long put) to provide this downward protection. Therefore capitalize on the stock expected to be bullish at the same time insurance from downside losses by going long on both put option and the stock.
Choose option A.Thus A. A long put option on a stock plus a long position in the stock describes a protective put is correct. Rest of the options are incorrect.
according to chegg rule i can only solve 1 question please post another part seperately
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