Buying a Put on a Stock That You Already Own

question 60

Multiple Choice

Buying a put on a stock that you already own is called a _________. The purpose is to protect the stock from a decline in value.

• A) covered put
• B) protective put
• C) spread
• D) straddle
• E) Strap

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Definitions:

Depreciation Expense

The allocated amount of the cost of an asset that is written off as an expense over its useful life.

Sales Price

The sum of money that a purchaser spends to acquire a product or service from a vendor.

Contribution Margin

The revenue remaining after deducting variable costs, which can be used to cover fixed costs and contribute to profit.

Variable Costs

Costs that change in proportion to the level of production or business activity.