A trader who has bought a stock at $30 is concerned about a downside movement in the stock and would like to place an order that guarantees selling it at $25. Which of the following will most likely help the trader achieve her objective? (GTC = Good-till-cancelled)
C is correct. Option contracts can be viewed as limit orders for which execution is guaranteed at the strike price. Therefore, a “put buy” order at a strike price of 25 will guarantee selling the stock at 25.