An investor who owns 500 shares of stock and is worried about a short-term decline could hedge by:

Why D — Buying 5 put options on the stock

Buying put options creates a protective put position — if the stock declines, the puts increase in value, offsetting the loss on the stock. Five puts cover 500 shares (100 shares each). Writing calls (A) generates income but provides only limited protection (only the premium received). Buying calls (C) would double down on the bullish position. Selling (D) eliminates the position entirely rather than hedging it.