Question

Outline and explain three strategies that could have been used by investors to take advantage of declining asset prices (no need to be specific, this question is more related to asset classes which tend to perform well in times of market stress)? (500 words)

Answer 1

strategy 1 : SHORT SELL - means selling an asset without having the asset

and in this your view is bearish means you think asset prise will fall   

you sell first at the higher rate and then buy at lower rate

this will work in equity market

strategy 2 : buy a long put option on stock

means in this your view is strongly bullish for this you have to pay some premium amount

and then as  stock prise falls your put option value will increase and by selling that you can earn profits.

strategy 3 : sell call option on stocks (short on call option )

in this you are mildly bearish and as you are selling the call option you will receive the premium for that

and as stock price falls then your call option value will increase