Select which option strategy would be most effective to use...

Select which option strategy would be most effective to use to protect a long stock position's gains and limit losses due to an unexpected decline in the price of the stock? a. Selling protective puts on the underlying stock. b. Selling protective calls on the underlying stock. c. Buying protective calls on the underlying stock. d. Buying protective puts on the underlying stock.

Transcript

00:01 Hello students, here is a question.

00:02 Which of the following strategy makes a profit when the stock price decline, the loss of money when the stock price declines? so, we have an options given in the question.

00:12 The options are the first is long and short put, a long call and short put.

00:23 The second will be short call and short and the third is long call and long put.

00:37 Long call and long and option d is short call and long put.

00:51 So, these are the options.

00:52 So, long call is a strategy which involves in buying option which gives the holder to write the understanding stock at a predetermined before the expiry date.

01:01 So, that strategy makes the profit when stock price increases and the holder can't buy the stock at a lower price and sell it to the higher price.

01:09 It loses money when stock price decreases.

01:12 So, the holder not exercise the option.

01:14 So, let it expire the worthless.

01:17 So, the short put is the strategy which involves the selling option which gives the buyer to sell an underlying stock at predetermined price before the expiry date.

01:27 So, the seller short put obligation to buy a stock is the stock price of a buyer exercise the options.

01:37 So, the first is the strategy makes profit a stock price increases to stable as the seller keeps the premium received from the selling option...

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