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An investor planning to buy IBM stock in 30 days can protect himself against price risk by: a)...

Question:

An investor planning to buy IBM stock in 30 days can protect himself against price risk by:

a) selling an IBM put option that matures in 30 days.

b) buying an IBM call option that matures in 30 days.

c) selling an IBM call option that matures in 30 days.

d) buying an IBM put option that matures in 30 days.

e) selling IBM stock short.

Price Risk:

Price risk is the risk that a price change will negatively affect an investor's cash flow. If the investor already owns an asset, price risk is the risk that the price will go down. If the investor plans to purchase an asset, price risk is the risk that the price will go up.

Answer and Explanation:


Since the investor plans to purchase the stock, he/she is worried about the price going up.


a) Incorrect.

Selling a put option will not provide...

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Financial Risk: Types, Examples & Management Methods

from Chartered Financial Analyst (CFA): Exam Prep & Study Guide

Chapter 9 / Lesson 9
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