choose the correct answer? 1. An protective put is: a.Buying a call and writing
ID: 2815491 • Letter: C
Question
choose the correct answer?
1. An protective put is:
a.Buying a call and writing a put on a stock that is owned by the investor
b. Buying a put on a stock that is not owned by the investor
c.Writing a call and buying a put on a stock that is not owned by the investor
d.Writing a put on a stock that is not owned by the investor
e.Writing a call and buying a put on a stock that is owned by the investor
f.Buying a call and writing a put on a stock that is not owned by the investor
g.Writing a put on a stock that is owned by the investor
2. A covered call protects the Term 1 ……………. Against an increase in the underlying asset’s
a. Call writer
b. Put buyer
c. Put writer
a.Buying a call and writing a put on a stock that is owned by the investor
b. Buying a put on a stock that is not owned by the investor
c.Writing a call and buying a put on a stock that is not owned by the investor
d.Writing a put on a stock that is not owned by the investor
e.Writing a call and buying a put on a stock that is owned by the investor
f.Buying a call and writing a put on a stock that is not owned by the investor
g.Writing a put on a stock that is owned by the investor
2. A covered call protects the Term 1 ……………. Against an increase in the underlying asset’s
a. Call writer
b. Put buyer
c. Put writer
Explanation / Answer
1) Protective Put strategy can be implemented by purchasing a put on a stock that is owned by the investor or writing a put on a stock that is not owned (short sale) by the investor. Therefore, option d is correct.
2) Covered call is executed by writing a call option on a stock that is not owned by the investor. This protects the call writer (the investor) against an increase in the underlying asset's price.
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