An article on the stock market observes: “To protect profits, investors can buy put options, which act as insurance, while investors who want to add exposure to the market can buy call options.”

a. How does buying a put option provide insurance against a fall in stock prices?

b. Compare the pros and cons of buying a put option versus selling stocks if you are worried that stock prices might decline.

c. What does “exposure” to the stock market mean? How does buying call options allow an investor to add exposure to the stock market to the investor’s portfolio?