Final answer:
To protect the gain on a short stock position in a rising market, one should execute a buy stop order or purchase a call option, as these strategies help to limit losses and hedge against market gains respectively.
Step-by-step explanation:
To protect the gain on a short stock position that may disappear as the market rises, the investor has several strategies they could consider:
- Execute a buy stop order in a rising market: This is an order to buy a security once its price surpasses a specified point, ensuring that the short position is covered and losses are capped.
- Purchase a call option: Buying a call option gives the investor the right to purchase a stock at a set price, helping to hedge against a rise in the stock's price without having to liquidate the short position.
- Sell a put option: This strategy would actually be counterproductive because if the market rises, the investor might be forced to buy the asset at a higher price.
- Purchase a put option: This generally is a strategy used to protect against a decline in the price of a stock one owns, not a short position.
Therefore, the two appropriate actions to protect a short position in a rising market would be to execute a buy stop order or purchase a call option.