T/F __ 1.Options can be used to guarantee profits if the asset drops in value or...

T/F

__ 1.Options can be used to guarantee profits if the asset drops in value or if the asset goes up in value as long as the move is big.

__ 2. It is never advisable to call in an in the money option with 1 month left on it.

Expert Solution

1. FALSE

Because options will not guarantee profits if the asset drops in value or asset goes up whatever the move is. That is options are very powerful that can boost individual portfolio by providing you more returns,protection and leverage However, Options trading also involves risk and is speculative in nature. Therefore it cannot gaurantee profits.

2. TRUE

It is never advisable to call in the money option with one month left because of the premium investor wants to pay is high. For example) an investor holds a call option of a particular company with a strick price of $ 50, the shares currently trades at $ 53, investor has the option to purchase the share for $ 50, with the profit of $ 3 dollar per share but there would be a premium of ,say $ 3.50 which would be higher than the profit. However, investor applying the call option that is expiring can apply it and earn the difference without the fear of any deductions.

jeff jeffy answered 2 years ago

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