Question

The best strategy to hedge a short stock position against the possibility of an increase in the market price of the security would be to(A )buy a call.(B) sell a call.(C) buy a put.(D) sell a put.

Answer 1

Answer:

It is to buy a call (A)

Explanation:

Entering a counter position to buy call option at an agreed price with the expectation of increase in stock price will better position the company to mitigate against unfavorable rises in the market share price . The gain realized from the call option will off-set the actual loss from increase in share price.