Question

"An investor has bought 500 shares of a volatile growth stock and wishes to limit downside loss. Which strategies are appropriate?"

Answer 1

The company can sell stop order or purchase a put option

Step-by-step explanation:

A sell stop order is useful in setting a stop price which is the set market price if achieved the stock can be sold on a market price thus it helps in lowering the downside risk.

Another option is to purchase 5 put options which gives the holder right to sell at market price if the market price of the stock is lower than the strike price which means we had limited downside loss.