Question

Amanda owns $300,000 worth of shares of Telsa. She is worried about the upcoming earnings announcement as she believes the stock will go down after the earnings are disclosed. Should she buy or sell a call or put option to maximize her protection (i.e. hedge if the stock price of Telsa goes down

Answer 1

Amanda Owns $300,000 worth of shares of Telsa. She is worried about fall in stock price.

So, to hedge or maximize her protection, she should buy put option. In put option, She shall have right to sell stock at strike price, even if stock price goes down. For e.g. if stock price goes down to $30 and strike price of put option is $40, She will have right to sell his stock at $40.

So, she should buy put option to maximize her protection.