Question

ABC stock is currently trading at an all-time high price of $150 per share. Your client contacts you about the stock, stating that he believes that the stock is ripe for a sell off after its next quarterly news announcement. He has $10,000 to use for a trade, but does not want to lose more than this amount. The BEST recommendation to the client is to:

Answer 1

Buy ABC Puts

Step-by-step explanation:

Based on the information provided within the question it can be said that the best recommendation to the client is to Buy ABC Puts. This is mainly due to the fact that the client specifically stated that he does not want to lose more than this investment. Therefore Puts are the best option since they are purchased as a speculation on a market price decline, and the customer can only lose the premium paid if the market does the opposite and ends up rising. While other options like shorting or selling can lead to unlimited loss potential.