SIE Exam Question 710: Answer and Explanation

Question: 710

If an investor expects a large decrease in the stock market 60 days from today, she can take advantage of the change by doing which of the following?

(1) Buying S&P 500 index calls

(2) Buying S&P 500 index puts

(3) Selling S&P 500 index calls

(4) Selling S&P 500 index puts

• A. (1) and (3) only
• B. (1) and (4) only
• C. (2) and (3) only
• D. (2) and (4) only

Correct Answer: C

Explanation:

If an investor expects a large decrease in the stock market 60 days from today, she can take advantage of the change by buying S&P 500 index puts and selling S&P 500 index calls.