Appropriate Uses of Derivatives for Risk Management

In a financial market environment characterized by high volatility, investors frequently seek ways to manage risk and protect their investment portfolios. One of the strategies they employ involves the use of derivatives. Derivatives are financial instruments whose value depends on the price of an underlying asset. They can be used for hedging, speculation, and arbitrage. Understanding the proper use of derivatives is crucial for effective risk management.

Which of the following describes an appropriate use of derivatives in the context of risk management for an investor holding a significant position in a volatile equity?