Question

In: Finance

Selling puts is very much like which of the following? Use letters in alphabetical order to...

Selling puts is very much like which of the following?

Use letters in alphabetical order to select options

  1. A Covered calls.

  2. B Buying insurance.

  3. C Selling naked calls.

  4. D Buying stock.

Buying puts is similar to which of the following?

Use letters in alphabetical order to select options

  1. A Buying insurance.

  2. B Selling naked calls.

  3. C Buying stock.

  4. D Covered calls.

Solutions

Expert Solution

1. Selling put option is indicative of a strategy which reflects that a trader is bullish.

Buying stock is another strategy which indicates that a trader is bullish.

So it can be said that selling put options is just like buying stocks.

Rest of the positions like covered call, buying insurance, selling naked calls are indicative of bearish strategy.

Correct answer is option (D) Buying Stock

2. Buying put option is just like buying an insurance because buying an insurance is providing hedge against any downside in life.

Rest of the options are not appropriate in this regard because some of them are either hedging strategies for some of them will have unlimited loss.

Correct answer is option (A ) Buying Insurance.

jeff jeffy answered 1 year ago
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