If you anticipate a stock’s price will fall, which position would you take?

• A. Long stock position
• B. Short stock position
• C. Buy call option
• D. Buy ETF

Answer: (B)

When you expect a stock’s price to fall, the direct way to profit is to take a short stock position. This means you borrow shares and sell them now, with the plan to buy them back later. If the price drops, you buy back the shares at the lower price, return the borrowed shares, and keep the difference (minus costs). The key is that your profit comes from a decline in price.

Owning the stock (long) would lose money as the price falls. Buying a call option bets on the price going up, so it wouldn’t benefit from a fall. Buying an ETF that tracks the stock would move with it and typically lose value as the stock falls, but it doesn’t provide the same direct profit from the decline as shorting does.