SIE Exam Question 667: Answer and Explanation

Question: 667

____ Purchasing a put option and selling a call option on the same stock at the same time.

• A. Collar
• B. Spread
• C. Straddle
• D. Protective put

Correct Answer: A

Explanation:

A collar is a technique used to protect an investor's gain in a long position of stock. Specifically, an investor purchases a put option to protect against a decline in the value of an underlying stock, and sells a call option to generate premium income to cover the cost of the put option premium.