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Chapter 1: Question 2-27I (page 52)

What options position is associated with:

a. The right to buy an asset at a specified price?

b. The right to sell an asset at a specified price?

c. The obligation to buy an asset at a specified price?

d. The obligation to sell an asset at a specified price?

Short Answer

Expert verified

a. Long call

b. Long put

c. Short put

d. Short call

Step by step solution

01

Definition

The right given to the holder to buy an asset at a specified price on or before a specified expiration date is called the call option.

02

Solution

a. Long call

b. Long put

c. Short put

d. Short call

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Most popular questions from this chapter

You’ve borrowed \(20,000 on margin to buy shares in Disney, which is now selling at \)40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share.

a. Will you receive a margin call?

b. How low can the price of Disney shares fall before you receive a margin call?

Balanced funds and asset allocation funds invest in both the stock and bond markets. What is the difference between these types of funds?

Explain the difference between a put option and a short position in a futures contract.

Turn back to Figure 2.9 and look at the Apple options. Suppose you buy an August expiration call option with exercise price \(355.

a. If the stock price in August is \)367, will you exercise your call? What are the profit and rate of return on your position?

b. What if you had bought the August call with exercise price \(360?

c. What if you had bought an August put with exercise price \)355?

Now visit the website of the NASD, www.finra.org. What is its mission? What information and advice does it offer to beginners?
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