153k views
16 votes
If an investor purchases 500 shares of an aggressive growth stock, which strategy would limit his downside risk

User Pro Mode
by
4.1k points

1 Answer

9 votes

Answer:

B)Buying 5 puts on the stock

Step-by-step explanation:

The put provides the investor right to sell the stock at a strike price or set price for a time period and protect against the losses that lies below the strike price.

Also buying calls would protect the short position of the stock. Now in the case when the customer has the long stock so the call purchase on that security would rise the leverage and risk. Now if the put option is written so it develops a liability to purchase more stock at the set price that increased the down side risk

Therefore the correct option is B

User Jeri
by
4.8k points