TRUE or FALSE 1). The increase in the volatility of the security has the impact of...

TRUE or FALSE

1). The increase in the volatility of the security has the impact of the increase in the value of the call option and the decrease in the value of the put option.

2)An investor may acquire a call option to protect a short selling position.

Thank you

Solutions

Expert Solution

1. The given statement is FALSE as The increase in volatility of a security increases the value of a call option and also of put option. The increase in volatillity positively impact the value of both the options positively.

So the statement that states that Increase in the volatillity of a security impact call positively and put option negatively is incorrect.

2. The given statement is TRUE as it is highly common to hedge a short selling position with calls of the same security.

When an investor has a short selling position, the risk he carries is that any untimely upward movement in stock will make him lose money, but when he hedges it with a call of the same security, The losses made in short selling position will be minimised with gains on the call options of the same security.

So it is a correct option which states that An investor may acquire a call option to protect short sale position.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

true or false ? 1)When a currency is devalued, the immediate impact may be an increase...

true or false ? 1)When a currency is devalued, the immediate impact may be an increase in a country's trade deficit. However, this situation tends to correct itself in 2 to 5 weeks. 2)The immediate impact of a devaluation of the domestic currency is to decrease the value of the spot exchange rate S$/fc. 3)One of the motivations for capital controls is to insulate an economy from foreign political risks Multiple choice questions (only one answer is correct). 1)The balance...

Options are not an actual security. True or False? True False

A short straddle is a long volatility strategy. True or False

true or false 1. The origin of photosynthesis led to an increase in methane in the...

true or false 1. The origin of photosynthesis led to an increase in methane in the atmosphere. 2. Stromatolites are evidence of the origin of prokaryotes. 3. Lamarck’s theory of inheritance of acquired characteristics is a commonly accepted mechanism of evolution. 4. The Permian Mass Extinction was likely caused by an enormous meteorite strike to the earth. 5. The Cambrian Explosion is the time period when the diversity of mammals expanded on earth.

True or False? if False say why 1- If you want to increase your FICO socre,...

True or False? if False say why 1- If you want to increase your FICO socre, it is a good idea to max out your credit card 2- if you cannot afford to make 20 percent down payment, you can choose to buy mortgage insurance and not to pay any down payment at all 3- the ratio of borrower income to housing expense is referred to as "LTV" 4- A mortgage is said to be confornming if it meets the...

True or false and explain 1. The paradox of thrift occurs when an increase in saving...

True or false and explain 1. The paradox of thrift occurs when an increase in saving leads to an increase in investment spending. 2. Suppose that the economy of Kennyland has an MPC of 0.8and an MPIM of 0.2. Currently, real GDP is $1800 and full-employment GDP is $2000. In this example, an increase in government spending of $40 will eliminate the GDP gap.

True or False: A Firm's capital structure has no impact on the firm's weighted average cost...

True or False: A Firm's capital structure has no impact on the firm's weighted average cost of capital

true or false if false make the statement right If sales increase by 5% and total...

true or false if false make the statement right If sales increase by 5% and total assets fall by 1%, the TAT ratio would go down by approximately 6% A decrease in the current ratio indicates an improvement in a firm’s liquidity. An increase in the cash coverage ratio means that a firm is less likely to default on its outstanding debt. Ceteris paribus, according to the DuPont framework, an increase in the use of debt would increase a firm’s...

1. Risk from investing in a security refers to: a. volatility of security price b. uncertainty...

1. Risk from investing in a security refers to: a. volatility of security price b. uncertainty about the future stock price c. volatility of security returns d. probability of loss from investing in the security 2. The expected value of annual returns of a portfolio is 10 percent with standard deviation of 20 percent. The compounded annual growth rate from investing in the portfolio is expected to be: a. 10 percent b. less than 10 percent c. more than 10...

True and False True/False Write True or False before the statement. 1. Gypsum is the brand...

True and False True/False Write True or False before the statement. 1. Gypsum is the brand name for sheetrock. 2. Coreboards and liner boards come in 2-foot widths. 3. Adhesives are not used for bonding gypsum board directly to supports. 4. Supplemental fasteners should be used with contact adhesives. 5. Gypsum panels are applied first to ceilings and then to the walls. 6. The floating angle method of drywall application omits fasteners in the corner intersection of the ceilings and...

Subjects