An agent wants to buy ABC stock in 6 month time. Fearing the adverse evolution of ABC price, the agent wants to hedge his position with a strategy based on options. Present with details (formation of the strategy, pros and cons of this strategy) 2 strategies that can be used by this agent.

The agent can hedge his position using options-

A. Buying the put option- Since the investor is looking for buying the stock then, he will be looking for purchasing of the put option because put option is a right to sell and it will be protecting against the downside of the price of the securities.

B. Selling of the call options- Since he is already having the required stock in his portfolio, then, he will be looking for covered call strategy in which he will be selling the call option and order to increase the overall return through collection of the the option premium and hence he can sell the call option which is also equivalent position like buying of the put option.