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SIE practice questioneasyOptions — Puts

An investor buys a put option on XYZ stock. The investor is:

  1. AObligated to buy XYZ shares if the option is exercised
  2. BBullish on XYZ because they expect the price to rise
  3. CBearish on XYZ because they expect the price to fall✓ Correct answer
  4. DNeutral on XYZ and expects no price movement
Explanation

Why C — Bearish on XYZ because they expect the price to fall

Buying a put is a bearish strategy — the investor profits when the stock price falls below the strike price. The put buyer has the RIGHT (not obligation) to sell at the strike price. If the stock drops well below the strike, the put becomes more valuable. The put SELLER (writer) would be obligated to buy shares if exercised (D describes the seller, not the buyer).

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