Mary has shorted 1,000 shares of XYZ. XYZ is trading at $100. She has already made significant gains and would like to protect these. Of the choices listed, which of the following would be the best strategies to protect these gains?
I. Buy calls on XYZ
II. Buy puts on XYZ
III. Close out her short position
IV. Use leverage to buy more XYZ
A. I and III
B. I and IV
C. II and III
D. II and IV

Question

12-12-2022
Mathematics

Answered

Mary has shorted 1,000 shares of XYZ. XYZ is trading at $100. She has already made significant gains and would like to protect these. Of the choices listed, which of the following would be the best strategies to protect these gains?
I. Buy calls on XYZ
II. Buy puts on XYZ
III. Close out her short position
IV. Use leverage to buy more XYZ
A. I and III
B. I and IV
C. II and III
D. II and IV

Answer :

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AyushiJain10 AyushiJain10 · Answer 1 · 2022-12-21T09:50:48-05:00

The best answer is C: II and III.

To protect her gains, Mary should consider strategies that limit her potential losses. Of the choices listed, the best strategies to protect Mary's gains would be to close out her short position (III) or buy puts on XYZ (II).

Buying calls on XYZ (I) would not protect Mary's gains, as it would only allow her to potentially make more money if the price of XYZ goes up. Buying more XYZ using leverage (IV) would also not protect Mary's gains, as it would expose her to even more risk if the price of XYZ goes down.

Therefore, The best answer is C: II and III.

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