Asked by Ipsita Mohapatra on May 02, 2024
Verified
A put option on the S&P 500 Index will best protect a portfolio
A) of 100 shares of IBM stock.
B) of 50 bonds.
C) that corresponds to the S&P 500.
D) of 50 shares of AT&T and 50 shares of Xerox stocks.
E) that replicates the Dow.
S&P 500 Index
A market-capitalization-weighted index of 500 of the largest publicly traded companies in the U.S.
Put Option
A financial derivative that gives the holder the right, but not the obligation, to sell a specific quantity of an underlying asset at a set price within a specified time.
- Analyze how multiple variables, including but not limited to dividend strategies, interest rate conditions, expiry timeframes, and stock price fluctuation, affect the valuation of call and put options.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
C
Explanation :
A put option on the S&P 500 Index is designed to hedge or protect against market declines in the S&P 500. Therefore, a portfolio that closely corresponds or is similar to the S&P 500 Index would be best protected by such a put option, as the option's performance would directly correlate with the underlying index's movements.
Learning Objectives
- Analyze how multiple variables, including but not limited to dividend strategies, interest rate conditions, expiry timeframes, and stock price fluctuation, affect the valuation of call and put options.
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