Question

A protective put strategy is Multiple Choice a long call plus a short put on the same underlying asset. None of the options are correct. a long put plus a long call on the same underlying asset. a long put plus a long position in the underlying asset. a long put plus a short call on the same underlying asset.

Answer 1

Answer:

a long put plus a long position in the underlying asset.

Explanation:

A protective put strategy is a long put plus a long position in the underlying asset. It is a risk management strategy that makes use of options contracts which are employed by investors to protect or guard their investments against a potential loss in stocks or assets such as commodities, indexes and currencies. The protective put strategy helps to mitigate or limit risk associated with buying stocks for the first time.

Generally, the value of the underlying asset is anticipated to decrease by the buyers while the value of the underlying asset is anticipated by sellers of call options to also decrease.

Hence, considering the prospective option holder, when the exercise price is higher, it means that the call options are worth less. Also, when the exercise price is higher, it means that the put options are worth more.