Question

An investor is short stock at $70. If the stock's market price is $40, and the investor anticipates the price will continue to decline, to hedge against a rise in the price, the investor should

Answer 1

A. Buy a call

Step-by-step explanation:

In the case when the investor purchase a call on the stock so the investor has the right to purchase for repurchase for a fixed price

Also the right way is to hedge a non-realized profit for a stock position i.e. short for purchasing a call

Therefore in the given situation, the correct option is A.