Asked by Ashley Lowell on Apr 25, 2024
Verified
If you anticipate a dramatic decline in stock prices, which naked strategy will make you the most profit?
A) long call
B) long put
C) short call
D) short put
Dramatic Decline
A rapid and significant drop in the value or price of an asset or market.
Naked Strategy
A trading tactic involving the speculative purchase or sale of financial instruments without protective measures to offset potential losses.
Long Put
An options strategy where an investor purchases a put option, betting that the underlying asset's price will decline below the strike price before expiration.
- Ascertain tactics for capitalizing on or protecting against particular market fluctuations.
- Examine the consequences of option pricing and the potential for profit in specific strategies.
Verified Answer
SL
Syaheer Luqman7 days ago
Final Answer :
B
Explanation :
A long put strategy involves buying put options, which gives the investor the right to sell a stock at a specified price within a certain time frame. If an investor anticipates a dramatic decline in stock prices, buying put options can be highly profitable because the value of the put options increases as the stock price decreases. This allows the investor to sell the stock at a higher price than the current market price, thus capitalizing on the anticipated decline in stock prices.
Learning Objectives
- Ascertain tactics for capitalizing on or protecting against particular market fluctuations.
- Examine the consequences of option pricing and the potential for profit in specific strategies.